« 


^ 


THE  LIBRARY 

OF 

THE  UNIVERSITY 

OF  CALIFORNIA 

LOS  ANGELES 


University  of  Washington 


University  Extension  Division 


The  State  Tax  System 

of 

Washington 

by 
VANDERVEER  CUSTIS,  Ph.  D. 

Associate  Professor  of  Economics 
University  of  Washington 


SEATTLE 

Published  by  the  University 
1916 


University  of  Washington 


University  Extension  Division 


The  State  Tax  System 

of 

Washington 

by 
VANDERVEER  GUSTIS,  Ph.  D. 

Associate  Professor  of  Economics 
University  of  Washington 


SEATTLE 

Published  by  the  University 
19  16 


Preface 

The  question  of  taxes  is  one  in  which  a  large  number  of  persons 
have  a  direct  personal  interest.  That  present  arrangements  are  un- 
satisfactory is  the  opinion  of  more  than  one  overburdened  taxpayer. 
"Unsatisfactory"  is  far  too  mild  a  term  to  express  the  views  of  tax 
experts  in  regard  to  such  a  system  as  that  now  in  use.  A  change  of 
some  sort  is  sure  to  come,  and  it  is  of  great  importance  that  the 
voters  should  know  along  what  lines  this  change  should  be  made. 

It  is  to  show  in  a  clear,  concrete  way  what  the  present  system 
is  and  why  a  change  is  needed,  and  to  suggest  some  possibilities  for 
improvement,  that  this  book  was  written.  In  order  that  the  present 
system  and  suggestions  for  reform,  made  here  or  elsewhere,  may  be 
fairly  criticised  a  chapter  on  fundamental  principles  of  taxation  is 
included.  For  those  who  wish  a  good  brief  book  on  the  general 
subject  of  taxation  Professor  Plehn's  "Introduction  to  Public  Finance" 
is  recommended.  Professor  Seligman's  works,  especially  his  "Essays 
in  Taxation,"  contain  careful  and  very  thorough  studies  of  many  im- 
portant points.  For  discussions  of  the  practical  problems  with  which 
American  states  are  confronted  the  proceedings  of  the  annual  confer- 
ences on  the  subject,  published  by  the  National  Tax  Association,  should 
be  consulted. 

While  assuming  full  responsibility  for  the  work,  the  author  wishes 
to  acknowledge  special  indebtedness  to  the  State  Board  of  Tax  Com- 
missioners, particularly  to  Mr.  J.  W.  Brislawn ;  to  Mr.  A.  E.  Parish, 
who  at  the  time  the  chapters  on  county  assessment  were  written  was 
Assessor  of  King  County;  and  to  Dean  J.  Allen  Smith,  of  the  Uni- 
versity of  Washington. 

Vanderveer  Custis. 

University  of  Washington 
June,   1916 


HO 


Contents 


Chapter. 

I.     Introduction 

§1.  The  Importance  of  the  Tax  System 

§2.  Extravagance  in  Expenditure 

§3.  Sources  of  Revenue 

§4.  State  and  Local  Taxation 

II.     Some  Fundamental  Principles 

§1.     Purpose  of  Taxation 

§2.     Basis  of  Taxation 

§3.     Adam  Smith's  Four  Canons 

§4.  Direct  and  Indirect  Taxation:  Incidence  and  Adminis- 
tration 

§5.  Direct  and  Indirect  Taxation:  Advantages  and  Disad- 
vantages 

§6.     Stability  and  Elasticity 

§7.     Tax  Systems  and   Single  Taxes 

§8.     The  Single  Tax  on  Land  Values 

§9.     Kinds  of  Taxes  and  the  Tax  System 

III.     The  General  Property  Tax:  Scope;  Levy;  and  Collection 

§1.  Definition 

§2.  General  History 

The  General  Property  Tax  in  Washington 

"^    §4.  Exemption  by  Definition:  Intangibles 

§5.  Exemptions  by  the  Constitution 

§6.  Limited   Discretion  of  the  Legislature 

§7.  Unconstitutional    Exemptions 

j^'   §8.  Tax  Limits 

§9.  General  Property  Tax  Apportioned 

§10.  The  Determination  of  the  Tax  Rule 

,    §11.  Collection  of  Taxes  on  Personalty 

^    §12.  Delinquency 

'^    §13.  Collection  of  Taxes  on  Realty 

§14.  Interest  on   Delinquent  Taxes 

§15.  Nearly  Two  Years  from  Assessment  to  Collection 


X  §s. 


> 


iv  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

IV.     The  General,  Property  Tax:     County  Assessments,  General 
Aspects 

§1.  Assessing  Officials 

§2.  The  Assessment  District 

§3.  The  County  Assessor:     Politics 

§4.  The  County  Assessor:     Experience  and  Ineligibility 

§5.  The  County  Assessor:     Remuneration 

§6.  Deputy  Assessors 

§7.  State  Supervision 

§8.  Assessors'  Conventions 

§9.  The  Time  of  Assessment 

§10.  Frequency  of  Valuation 

§11.  Assessed  Value  and  True  Value 

§12.  Advantages  and  Disadvantages  of  Full  Valuation 

§13.  "Excessive  Bonding" 

V.     The  General  Property  Tax:   County  Assessment;  Valuation  of 
Property 

§1.     Varying  Methods  of  Assessment 

§2.     Considerations  Affecting  Real  Estate 

§3.     Urban  Lands 

§4.     Rural  Lands 

§5.     Permanent  Improvements 

§6.     Forest  Lands 

§7.     Mineral   Lands 

§8.     Summary  of  Real   Estate  Assessment 

§9.     Assessment  of  Personal   Property 

§10.  Live  Stock 

§11.  Merchants'  Stock  in  Trade 

§12.  Manufacturing  Plants 

§13.  Banks 

§14.  Public  Service  Corporations 

§15.  Fish  Trap  Locations 

§16.  Household  Goods 

§17.  Summary  of  Personal  Property  Assessment 

§18.  Boards   of   Equalization 

VI.     The  General  Property  Tax:     State  Assessment 

§1.     Railroad  and  Telegraph  Companies 
§2.     Reasons  for  State  Assessment 


CONTENTS  V 

§3.     State  Versus  National  Assessment 

§4.     Operating  Property,  only,  Subject  to  State  Assessment 

§5.     Powers  of  the  Tax  Commissioners 

§6.     True  Value  and  Fair  Value 

§7.     Methods  of  Assessment 

§8.     Apportionment  to  the  State 

§9.     Apportionment  to  the  Counties 

§10.   Mileage  as  a  Basis 

§11.   The  Question  of  Terminals 

§12.   Equalization  of  Railroad  and  Telegraph  Assessments 

§13.  Results  of  the  System  of  State  Assessment 

§14.  Extension    of    State    Assessment:    Public    Utilities    and 

Watercraft 
§15.   Summary 

VII.  Business  and  Corporation  Taxes 

§1.  The  General  Property  Tax  and  Other  Taxes 

§2.  Corporation  Fees 

§3.  The  Corporation  Franchise  Tax 

§4.  Insurance  Companies:     Fees  and  Taxes 

§5.  Insurance  as  a  Subject  for  Taxation 

§6.  Privilege  Taxes  on  Express  and  Private  Car  Companies 

§7.  Liquor  Licenses 

§8.  Automobile   Licenses 

VIII.  The  Inheritance  Tax 

§1.  The  Growth  of  the  System 

§2.  The   Scope   of  the   Inheritance   Tax 

§3.  Multiple  Taxation 

§4.  Exemptions 

§5.  Rates 

§6.  Progressive  Character 

§7.  Collection 

§8.  Yield  of  the  Inheritance  Tax 

§9.  Inheritance  Tax  Sound  in  Principle 

IX.  The  Reform  of  the   Tax   System 

§1.     The  General  Property  Tax  the  Chief  Object  of  Reform 

§2.     Possibilities  in  Assessments  and  Rates 

§3.     The  Tax  Fundamentally  Defective  in  Theory 


vi  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

§4.  The  Shifting  of  Taxes 

§5.  Need  of  Constitutional  Amendment 

§6.  Classification  of  Propert}^  for  Taxation 

§7.  The  Classified  Property  Tax  and  Personal  Property 

§8.  The  Classified  Property  Tax  and  Intangibles 

§9.  The  Classified  Property  Tax  a  Big  Step  Forward 

§10.  The    Income   Tax 

§11.  Home  Rule  in  Taxation 

§12.  Separation  of  the  Sources  of  State  and  Local  Revenue 

§13.  Vital  Importance  of  Tax  Commission 

§14.  The  Present  System  Outgrown 


Chapter  I. 
INTRODUCTION 

§1.  Justly  proud  though  the  citizen  of  Washington  may 
be  of  his  State,  he  realizes,  if  he  happens  to  liold  much  property, 
that  the  burden  of  public  expenditures  is  rather  heavy.  Once  every 
two  years  legislators  are  sent  to  Olympia.  They  promise  economy; 
but  if  taxes  are  not  increased  as  a  result  of  the  session  the  taxpayers 
are  inclined  to  regard  themselves  as  fortunate. 

When  any  reform  of  the  tax  system  is  proposed,  the  criticism 
is  likely  to  be  offered  that  the  real  difficulty  is  in  the  amount  of  ex- 
penditures. If  these  be  increased,  larger  revenues  are  needed;  and, 
this  means  increased  taxes.  While  it  must  be  admitted  that  there  is 
a  considerable  amount  of  public  extravagance,  and  that  economy  and 
efficiency  in  expenditure  are  greatly  to  be  desired,  it  should  be  real- 
ized that  the  increase  in  expenditures  is  almost  certain  to  continue. 
With  the  growth  of  population  and  the  increasing  complexity  of  civ- 
ilization it  costs  more  for  the  State  to  perform  its  old  functions  and 
new  functions  are  frequently  added.  Even  when  allowance  is  made 
for  the  increase  in  wealth  it  is  by  no  means  improbable  that  in  the 
future  a  larger  proportion  of  the  income  of  the  people  will  be  spent 
by  the  public  authorities  than  has  been  the  case  in  the  past.  Against 
this,  of  course,  must  be  set  the  greatly  increased  benefits  that  will  be 
conferred  by  the  State. 

It  does  not  seem  to  be  generally  appreciated  that  while  the 
amount  of  taxation  will  continue  to  be  large  the  burden  would  be 
easier  to  bear  if  it  were  more  equitably  distributed.  This  does  not 
necessarily  mean  that  methods  should  be  devised  for  placing  a  larger 
share  of  the  burden  on  the  great  corporations  or  on  those  who  happen 
to  have  more  wealth  than  the  average  citizen.  While  it  is  doubtless 
true  that  some  corporations  are  escaping  their  fair  share,  there  is 
reason  to  believe  that  others  are  unduly  taxed.  While  some  persons 
of  moderate  means  are  contributing  heavily  there  are  others,  equally 
able  to  pay,  who  are  contributing  little.  The  question  is  not  one  of 
how  the  burden  can  be  placed  on  the  few  to  the  relief  of  the  many, 
but  of  how  it  can  be  justly  distributed  among  all  classes. 

A  bad  system  of  taxation  not  only  works  injustice  between  differ- 
ent members  of  society;  but  it  may  hamper  business,  discourage  the 

(1) 


2  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

accumulation  of  capital,  on  which  the  welfare  of  nearly  all  classes  is 
largely  dependent,  and  so  check  the  development  of  the  community  as 
to  place  it  at  a  disadvantage  in  the  great  evolutionary  struggle  in 
which  nations,  states,  and  municipalities,  as  well  as  individuals,  are 
engaged. 

An  unjust  system  of  taxation  may  actually  encourage  public  ex- 
travagance. It  is  almost  certain  to  do  so  if  it  places  the  burden 
chiefly  on  the  few  when  political  power  is  in  the  hands  of  the  many. 
If,  while  actually  distributing  the  burden  widely,  it  appears  to  place 
it  on  the  few  similar  results  are  likely  to  follow,  since,  as  an  influence 
determining  political  policy,  what  is  is  often  of  less  importance  than 
what  is  believed  to  be.  The  system  existing  in  this  State  probably 
does  result  in  a  wider  distribution  than  is  generally  realized;  and  in 
this  condition  is  doubtless  to  be  found  one  of  the  causes  of  the 
present  extravagance. 

§2.  In  devoting  attention  to  taxation  rather  than  to  ex- 
penditure it  is  not  the  intention  of  the  author  to  minimize  the  im- 
portance of  public  economy.  That  is  a  separate  problem,  and  it  is 
one  well  worthy  of  study.  Admitting  this,  the  author  feels  that, 
under  existing  conditions,  a  consideration  of  the  tax  system  will 
prove  to  be  even  better  worth  while.  Since,  however,  the  need  of 
economy  in  expenditure  is  so  strongly  felt,  it  will  be  well  to  say  a  few 
words  in  regard  to  it  at  this   point. 

Unfortunately  the  conditions  under  which  appropriations  are 
made,  in  this  as  in  most  other  states,  are  very  unfavorable  to  an  in- 
telligent and  economical  financial  policy;  and  a  reform  of  budgetary 
procedure  is  one  of  the  first  steps  that  should  be  taken  for  the  pre- 
vention of  unwise  expenditure.^  For  a  satisfactory  system  two 
things  are  essential :  a  definite  location  of  responsibility ;  and  a  well 
considered  financial  program.  Until  recently  we  have  had  neither. 
The  Legislature,  at  its  last  session,  made  provision  for  a  new  sys- 
tem. Hereafter  state  departments,  commissions,  institutions,  and 
offices  are  to  report  to  the  State  Board  of  Finance,  not  later  than  Oc- 
tober 15th  of  each  even  numbered  year,  an  itemized  estimate  of  their 
expenses  for  the  coming  biennium.  The  State  Auditor  is  to  assemble 
these  estimates,  showing  existing  appropriations  and  the  amounts  ex- 
pended up  to  September  30th.     He  is  also  to  set  forth  the  revenues 

'For  a  discussion  of  this  subject,  with  definite  suggestions,  see  L.  M. 
Livengood,  "A  Budget  System  for  the  State  of  Washington,"  in  "Taxation 
in  Washington,"  Bulletin  of  the  University  of  Washington,  University  Ex- 
tension Series,  No.  12.  This  bulletin  will  hereafter  be  referred  to  simply 
as   "Taxation   in   Washington." 


INTRODUCTION  3 

of  the  State  up  to  that  date  and  the  estimated  receipts  for  the  coming 
biennium.  The  needs  of  the  departments,  etc.,  as  set  forth  in  their 
estimates,  are  to  be  examined  by  the  State  Board  of  Finance,  which 
may  demand  additional  information,  and  may  make  its  own  inspec- 
tions, examine  books,  and  administer  oaths.  On  the  basis  of  the 
information  thus  acquired  it  is  to  make  its  recommendations  to  the 
Legislature. 

The  new  law  seems  to  provide  for  the  preparation  of  a  financial 
program;  and  if  the  work  is  well  done  a  distinct  step  in  advance  will 
have  been  made.  How  great  a  step  it  will  be  is  something  that  only 
the  future  can  disclose.  In  any  event  it  is  only  a  step.  A  financial 
program,  which  may  be  well  considered,  must  be  submitted  to  the  Leg- 
islature; but  what  the  Legislature  will  do  with  it  remains  to  be  seen. 
Centralization  of  responsibility  still  seems  to  be  lacking.  Any  mem- 
ber of  either  house  may  submit  a  bill  relating  to  revenue  or  expendi- 
ture; and  at  every  session  a  number  of  bills  are  introduced,  some  of 
which  are  of  value  chiefly  in  the  gaining  of  political  support  for  the 
member  introducing  them.  Bills  are  commonly  referred  to  a  commit- 
tee; but  there  is  no  one  committee  which  can  be  held  responsible  to 
the  people  as  a  whole  or  whose  action  is  definitely  that  of  the  admin- 
istration. Fortunately  the  Governor  has  the  right  to  veto  particular 
items  in  a  bill ;  but  except  in  cases  which  he  regards  as  particularly 
bad  he  is  naturally  inclined  to  shift  responsibility  to  the  Legislature. 
The  right  of  referendum  is  retained  by  the  people,  but  it  does  not 
apply  to  legislation  necessary  for  the  immediate  preservation  of  the 
public  peace,  health,  or  safety,  or  the  support  of  the  state  government 
and  its  existing  institutions.  In  any  event  the  referendum  is  slow  in 
action,  and  is  unsuitable  for  dealing  with  matters  of  this  sort. 

Budgetary  procedure  is  more  highly  developed  in  local  than  in 
state  finance.  County  commissioners,  city  and  town  councils,  and  di- 
rectors of  school  districts  lying  in  whole  or  in  part  within  the  limits 
of  incorporated  cities  or  towns  are  required  to  make  annually  itemized 
lists  of  estimated  expenditures,  together  with  estimated  receipts  from 
other  sources  than  taxation,  and  a  statement  of  the  amounts  which  it 
is  proposed  to  levy.  Notice  must  be  given  of  the  time  and  place  of 
a  meeting  at  which  taxpayers  may  appear  and  be  heard  for  or  against 
the  proposed  levies.  After  this  taxes  are  voted  in  specific  sums  which 
must  not  exceed  the  amounts  named  in  the  estimates.  A  law  imposing 
such  requirements  as  these  does  not,  of  course,  guarantee  the  use  of 


4  THE  STATE  TAX  SYSTEM  OP  WASHINGTON 

a   well   considered  budget ;   but   it  at  least  goes   a  long  way  towards 
providing  the  necessary  machinery. 

§3.  It  is  only  with  that  part  of  the  budget  that  deals  with 
revenue  that  we  are  now  concerned,  and  even  here  only  with  the  items 
that  have  to  do  with  taxation.  In  order,  however,  to  make  clear  the 
nature  of  the  taxation  and  its  place  in  the  revenue  system  we  shall 
here  pause,  for  a  moment,  to  consider  very  briefly  the  different  sources 
from  which  the  State  derives  its  income. 

As  the  term  is  here  used,  "a  tax  is  a  compulsory  contribution  of 
the  wealth  of  a  person  or  body  of  persons  for  the  service  of  the  public 
powers,"-  levied  without  regard  to  any  particular  service  to,  or  on 
account  of,  the  contributor.  Strictly,  the  word  wealth  should  be  held 
to  include  services.  Of  these  the  most  important  in  this  country,  at 
least  in  times  of  peace,  is  jury  duty.  In  our  consideration  of  the 
tax  system,  however,  we  shall  omit  all  reference  to  contributions  of 
services,  confining  our  attention  to  those  forms  of  taxation  that  are 
paid  into  the  public  treasury. 

A  fee  differs  from  a  tax  in  that  it  is  imposed  to  defray,  in  whole 
or  in  part,  the  expense  involved  in  some  governmental  action  which 
is  occasioned  by  the  person  from  whom  the  payment  is  required  or 
confers  upon  him  a  special  benefit.  As  examples  of  fees  may  be  cited 
the  payments  required  for  inspection  of  various  kinds,  for  the  issu- 
ance of  certificates,  and  for  some  of  the  services  rendered  by  the 
courts.  In  definitions  of  the  fee  the  idea  is  commonly  expressed 
that  it  is  a  payment  for  a  special  benefit.  As  regards  some  kinds  of 
fees  this  is  legitimate  enough ;  but  there  are  others  of  such  a  character 
as  to  make  it  necessary  to  point  out  that  the  special  benefit  may  be 
such  "by  legal  fiction"  or  "arbitrarily  so  considered."  In  any  event 
the  payment  should  not  exceed  the  expense  involved.  If  it  does  it 
should  be  regarded  as  part  fee  and  part  tax. 

Prices,  in  this  connection,  are  payments  to  the  government  that 
rest  primarily  on  a  commercial  basis.  They  include  rentals  and  in- 
terest as  well  as  payments  for  the  purchase  of  goods  or  services. 
Prices  are  more  conspicuous  in  municipal  than  in  State  finance. 
Cities  often  sell  water,  gas,  and  electricity.  The  State,  however,  is 
not  without  revenues  of  a  commercial  character.  Washington  owns 
a  considerable  amount  of  real  estate  from  which  it  receives  rentals. 
Funds  are  invested  in  securities  from  which  interest  is  received. 
Money  on  hand  is  deposited  at  interest  in  the  banks.     In  these  cases 

-Bastable,  "Public  Finance"    (third  edition),   p.   263. 


INTRODUCTION  5 

the  State,  though  possessed  of  sovereign  power,  puts  itself  in  sub- 
stantially the  same  position  as  would  be  occupied  by  a  private  in- 
dividual or  a  corporation  rendering  the  same  service.  Where,  how- 
ever, the  government  exercises  monopoly  powers  and  charges  a  price 
that,  as  a  price,  is  unduly  high  the  element  of  taxation  is  present. 

To  examine  all  the  fees  and  prices  charged  by  the  State  in  order 
to  determine  whether  or  not  they  contain  an  element  of  taxation  would 
be  a  long  and  difficult  task,  and  for  present  purposes  it  would  hardly 
be  justified.  We  shall  therefore  treat  as  taxes  those  that  are  primarily 
such,  and  shall  leave  out  of  account  other  forms  of  payment  that  con- 
tain a  small  element  of  taxation.  There  are  some  "fees,"  however, 
which  yield  so  much  revenue  above  the  expenses  of  the  services  in  con- 
nection with  which  they  are  made  as  to  require  consideration. 

Besides  the  three  forms  of  income  just  mentioned  the  State  de- 
rives a  certain  amount  of  revenue,  probably  larger  than  is  generally 
realized,  from  escheats  or  the  reversion  of  property  for  which  no 
lawful  owner  can  be  found,  from  gifts,  and  from  penalties.  The 
mention  of  gifts  may  seem  strange,  yet  Washington,  like  many  of 
the  other  states,  has  received  large  grants  of  land  from  the  nation, 
and  even  now  receives  annual  gifts  or  subventions  for  specified  pur- 
poses, such  as  the  maintenance  of  certain  forms  of  education  and  the 
Soldiers'  Home.  Gifts  from  private  individuals  are,  perhaps,  less 
common  in  the  case  of  state  than  in  that  of  municipal  finance,  yet  con- 
siderable gifts  are  sometimes  made  to  state  institutions.  One  exam- 
ple is  the  Gatzert  Foundation  of  Child  Welfare  at  the  State  Univer- 
sity. 

A  considerable  amount  of  money  is  sometimes  secured  through 
public  borrowing,  through  the  sale  or  redemption  of  securities  held  for 
investment,  or  through  the  sale  of  other  property.  Receipts  of  this 
class  may  be  of  great  importance ;  but,  except  so  far  as  a  profit  is  made 
from  such  transactions  they  belong  to  the  capital  rather  than  to  the 
income  account. 

While  there  are  a  few  cases  in  which  classification  is  difficult, 
taxes  are  generally  so  different  in  nature  from  other  forms  of  revenue 
as  to  make  a  separate  consideration  of  the  tax  system  practicable. 
Its  compulsory  character  makes  it  important  that  consideration  be 
given  to  its  efficiency.  The  weight  of  the  burden  renders  especially 
significant  the  problem  of  its  just  distribution.  The  fact  that  the 
revenues  are  used  for  general  purposes  raises  the  questions  of  what 
justice  in  taxation  is  and  how  it  can  be  secured. 


6  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

§4.  In  our  study  of  existing  conditions  we  shall  confine  our 
attention  almost  exclusively  to  the  state  system.  Local  taxation  is,  of 
course,  heavier,  and  from  that  point  of  view  is  of  more  importance. 
As  a  matter  of  fact,  however,  a  study  of  the  state  system  will  nearly 
cover  that  of  the  localities.  Most  of  the  local  tax  revenues  are  drawn 
from  the  same  system  as  those  of  the  State.  The  chief  differences  are 
to  be  found  in  the  amount  of  the  taxes  levied,  and  consequently  in  the 
rates  that  are  imposed.  Indeed,  from  one  point  of  view,  it  might  be 
said  that  we  are  really  studying  the  local  system  with  special  refer- 
ence to  the  State.  The  general  property  tax  is  by  far  the  most  im- 
portant and  this  is  administered  chiefly  by  officials  elected  by  the 
counties,  though  subject  to  state  supervision.  Liquor  licenses — now 
things  of  the  past — were,  most  of  them,  locally  administered ;  but  the 
State  got  its  share  and  attention  will  be  given  them  in  that  connection. 
The  other  taxes  collected  by  the  political  subdivisions  of  the  State  are 
of  much  less  importance. 

For  the  purpose  of  our  study,  the  system  of  the  State  may  be 
divided  into  three  main  groups :  the  general  property  tax ;  taxes  on 
corporations  and  business ;  and  the  inheritance  tax.  The  first  of  these 
is  really  a  very  complex  system  in  itself,  and  from  several  points  of 
view,  including  that  of  revenue,  is  of  more  importance  than  all  the 
rest  combined.  Taxes  on  corporations  and  business  include  various 
license,  franchise,  and  privilege  taxes,  as  well  as  some  fees  that  are 
so  large  as  to  include  a  considerable  measure  of  taxation.  In  this 
connection  we  shall  consider  one  or  two  kinds  of  payments  which 
while  not  strictly  business  taxes  bear  some  resemblance  to  them.  The 
inheritance  tax  is  one  definite  tax,  and  while  not  without  some  de- 
fects, is  one  of  the  best  taxes  we  have. 


Chapter  II. 

SOME  FUNDAMENTAL  PRINCIPLES 

§1.  One  of  the  first  points  to  be  considered  in  the  study  of  any 
existing  institution  is  its  purpose.  To  any  question  on  this  score 
as  regards  taxation  the  answer  may  appear  obvious:  its  purpose  is  to 
raise  revenue.  This,  indeed,  is  implied  by  our  definition  of  taxation. 
In  practice,  however,  what  are  commonly  called  taxes  are  not  infre- 
quently levied  for  other  purposes,  such  as  the  regulation  of  industry 
or  a  modification  of  the  distribution  of  wealth.  In  some  instances 
revenue  is  hardly  a  consideration  at  all.  Such  is  the  case  with  the 
federal  "tax"  of  ten  per  cent  on  the  notes  of  state  banks.  The  state 
"tax"  of  $300,  levied  in  connection  with  the  Red  Light  Abatement 
Act,  is  really  a  penalty  rather  than  a  tax.  In  some  instances 
revenue  is  an  important  but  perhaps  a  secondary  considera- 
tion. Such  is  the  case  with  the  protective  tariff  and  the  license 
taxes  imposed  on  certain  kinds  of  business,  such  as  that  of  dealing 
in  alcoholic  liquors.  Numerous  plans  have  been  suggested  for  taxes 
designed  to  cure  the  "unjust  distribution  of  wealth"  and,  incidentally 
at  least,  to  secure  a  revenue,  such  as  the  tax  on  "swollen  fortunes"  or  a 
very  heavy  tax  on  large  incomes. 

"Taxes"  that  in  purpose  and  effect  yield  no  revenue  or  only  an 
insignificant  amount  need  hardly  be  considered  in  a  work  on  taxa- 
tion. From  an  economic  point  of  view  they  are  not  taxes  at  all. 
They  are  more  like  fines ;  and  the  fact  that  they  have  the  form  of 
taxes  is  often  due  to  constitutional  difficulties  in  the  way  of  dealing 
with  the  matter  more  directly. 

When  a  tax  is  used  for  two  different  purposes,  such  as  the  rais- 
ing of  revenue  and  the  regulation  of  industry,  two  distinct  things  are 
confused,  and  the  result  is  likely  to  be  that  one  or  both  purposes  is 
badly  served.  If  the  tax  be  not  entirely  unsuited  to  at  least  one  of 
them  the  rates  and  methods  of  levy  appropriate  for  the  two  are  very 
likely  to  be  different.  Where,  for  example,  one  object  is  to  restrict 
a  business  the  tax,  generally  speaking,  will  yield  a  revenue  only  so 
far  as  it  fails  to  restrict,  and  will  restrict  only  so  far  as  it  fails 
to  yield  a  revenue.  In  practice  the  result  is  often  a  compromise  that 
is  satisfactory  from  neither  point  of  view.  The  objection  to  the 
use  of  a  tax  for  a  double  purpose,  however,  is  only  a  prima  facie  one. 
It  may  be  overcome  by  special  considerations. 

(7) 


8  I  THE  STATE  TAX  SYSTEM  OP  WASHINGTON 

While  we  are  not  here  concerned  with  federal  finance,  the  pro- 
tective tariff  furnishes  an  excellent  example.  If  the  tariff  be  suffi- 
ciently high  to  give  the  market  to  domestic  producers  it  yields  no  rev- 
enue :  in  so  far  as  it  is  low  enough  to  permit  foreign  goods  to  enter 
the  country  it  fails  to  protect  home  industry.  Nor  is  this  all.  The 
experience  of  the  United  States  has  been  that  while  a  large  revenue 
has  been  secured  it  has  been  unstable  in  amount  and  very  difficult  to 
control.  More  than  once,  in  times  of  need,  especially  in  time  of  war, 
the  revenue  has  been  insufficient,  and  at  other  times  a  large  surplus 
has  led  to  extravagance.^  These  difficulties  are  not  entirely  due  to 
the  protective  feature,  but  there  can  be  little  doubt  that  they  have 
been  greatly  aggravated  thereby.  Moreover,  the  protective  feature 
makes  adjustment  for  financial  reasons  difficult;  and  financial  consid- 
erations stand  in  the  way  of  reform  from  the  point  of  view  of  pro- 
tection. Revenue  is  certainly  desirable,  and  protection  may  be,  but 
the  combination  of  the  two,  even  if  justified,  has  some  very  unfortunate 
features. 

Another  illustration  is  furnished  by  liquor  licenses.  If  it  be  de- 
cided that  the  liquor  business  should  be  conducted  by  private  indivi- 
viduals  for  profit,  subject  to  restraint  and  regulation,  there  is  some- 
thing to  be  said  in  favor  of  a  high  license  policy.  Such  taxes  yield  a 
large  revenue  and  are  easily  collected.  They  restrict  the  business, 
and  tend  to  concentrate  it  in  a  relatively  small  number  of  establish- 
ments, thus  making  supervision  easier.  In  some  cases  the  fact  that 
a  high  tax  must  be  paid  for  a  license  makes  the  latter  so  valuable  that 
the  liquor  dealer  will  take  care  that  he  does  not  lose  it  through  a 
violation  of  the  law.  This,  however,  is  about  all  that  can  be  said  in 
favor  of  high  license  as  a  means  of  regulation ;  and  it  must  be  admit- 
ted that  the  liquor  problem  remains  unsolved.  It  may  at  least  be 
seriously  questioned  whether  the  desire  for  revenue  has  not  in  some 
cases  led  to  a  faulty  administration  of  the  liquor  laws.  Regulation 
by  high  license  rests,  moreover,  on  an  assumption  as  to  the  sort  of 
regulation  needed.  On  almost  any  other  assumption  the  large  revenue 
derived  from  the  business  is  a  serious  obstacle  in  the  way  of  dealing 
with  the  problem  on  its  merits.  In  more  than  one  case  the  fear  of 
losing  revenue  has  furnished  a  strong  argument  against  the  elim- 
ination of  the  saloon. 

'See  Hoxie,  "The  Adequacy  of  the  Customs  Revenue,"  Journal  of  Po- 
litical Economy,"  Vol.  III.,  pp.  43-64:  reprinted  under  the  title  "The  Cus- 
toms Revenue  of  the  United  States,"  in  Bullock's  "Selected  Readings  in 
Public  Finance,"   Ch.  XVIII. 


SOME    FUNDAMENTAL   PRINCIPLES  9 

The  propriety  of  taxation  as  a  means  of  regulating  tlie  distri- 
bution of  wealth  is  even  more  doubtful.  Indeed,  in  all  the  proposed 
forms  with  which  the  author  is  familiar  it  would  be  dangerous.  In 
so  far  as  great  fortunes  are  the  result  of  payment  for  services  ren- 
dered, taxation,  if  successful  in  its  object,  would  in  all  probability 
lead  men  either  to  render  less  service  or  to  spend  their  incomes  in  ex- 
travagance. In  either  case  the  accumulation  of  capital  would  be 
checked ;  and  capital  is  one  of  the  factors  in  the  productivity  of  in- 
dustry, on  which  the  prosperity  of  nearly  all  classes,  not  in  the  least 
excepting  labor,  is  dependent. 

The  present  gross  inequality  in  the  distribution  of  wealth  is  due 
to  underlying  causes.  Unless  there  is  an  almost  incredible  inequality 
in  individual  capacity  these  causes  must  be  found  in  the  economic 
conditions.  Merely  to  tax  the  rich  for  the  benefit  of  the  poor  is  to 
treat  the  symptoms,  not  the  disease ;  to  hit  at  results,  not  at  causes. 
So  far  as  it  gives  relief  it  is  very  like  an  opiate,  deadening  pain, 
indeed,  but  lowering  vitality,  killing  ambition,  drawing  attention  away 
from  the  real  causes  of  the  evil,  and  allowing  them  to  grow  in  strength. 
There  is,  of  course,  a  legitimate  field  for  the  use  of  opiates,  and 
the  same  may  be  said  of  taxation  as  a  means  of  dealing  with  the  un- 
equal distribution  of  wealth.  It  must  not,  however,  be  supposed  for 
a  moment  that  it  is  a  remedy  or  that  it  can  be  used  without  danger. 
To  apply  a  real  remedy  will  doubtless  cost  money  that  must  be  raised 
by  taxation;  but  such  taxation  will  be  laid  on  different  principles 
than  those  taxes  designed  to  alter  directly  the  distribution  of  wealth. 

§2.  The  expenditures  of  the  state  are  justified  by  the  benefits 
resulting;  and  in  so  far  as  the  purpose  of  taxation  is  to  provide  the 
necessary  revenues  it  follows  that  the  justification  for  taxation  is  to 
be  found  in  the  benefits  conferred  by  the  state.  It  must  not  be  in- 
ferred, however,  that  the  amount  of  taxes  that  each  should  pay  de- 
pends on  the  benefit  that  he  individually  receives.  The  state  is  no 
mere  cooperative  association,  formed  to  confer  benefits  on  particular 
individuals  at  a  price.  Such  functions  it  may  have ;  but  above  and 
beyond  these,  it  is  an  organization  formed  for  the  maintenance  of 
conditions  on  which  the  life  and  prosperity  of  its  members  depend. 
No  one  who  admits  that  the  state  may,  if  necessary,  rightfully  de- 
mand of  individuals  the  sacrifice  of  life  or  health  on  the  field  of  battle 
can  logically  hold  that  its  rightful  claim  is  limited  to  payment  for 
benefits  received.     To  those  who  deny  the  premise  it  need  only  be 


10  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

said  that  the  laws  of  natural  selection  will  take  care  of  a  state  built 
on  such  a  denial;  and  the  place  thereof  will  know  it  no  more. 

Where  the  state  confers  what  are  distinctively  individual  benefits 
a  payment  upon  that  basis  may  legitimately  be  collected.  Such  pay- 
ments, however,  are  in  the  nature  of  prices  or  fees.  Taxation  is  im- 
posed for  defraying  the  expenses  due  to  general  functions,  such  as 
the  securing  of  the  rights  to  life,  liberty,  and  the  pursuit  of  happiness. 
To  take  but  one  example,  the  support  of  an  educational  system  by 
taxation  is  justified,  not  so  much  by  the  benefit  conferred  on  the  in- 
dividuals directly  affected,  as  by  the  fact  that  a  state  in  which  an 
educational  system,  open  to  all,  is  maintained  is  stronger,  better,  and 
happier  than  one  in  which  it  is  not.  The  State  of  Washington  is 
justified  in  spending  millions  of  dollars  on  its  University,  not  primarily 
because  of  the  benefit  derived  by  a  few  thousand  students,  constituting 
but  a  small  percentage  of  the  population,  but  because  by  reason  of  the 
University  the  State — that  is,  the  people  taken  as  a  whole — is  better 
fitted  to  survive  in  the  evolutionary  struggle  and  to  prosper.  In  so 
far  as  the  University  is  successful  those  who  benefit  most  directly  are 
assets  to  the  State  or  at  least  to  mankind,  of  which  the  people  of 
the  State  are  a  part;  and  the  same  may  be  said  of  the  results  of  re- 
jsearch. 

Where  the  benefits  are  common,  taxation  according  to  benefit  is 
impossible,  partly  because  the  individual's  share  is  impossible  to  esti- 
mate.    It  is  true  that  in  most  cases  some  benefit  may  be  directly  at- 
tributed ;   but   if   we   were   to   attempt   to   apportion   taxation   on  this 
basis,  ignoring  all  benefits  that  cannot  be  directly  traced,  the  results 
would   be   startling.      One   of  the  chief   functions   of  the   State  is   to 
protect  life  and  liberty.     Unless  we  are  to  assume  that  the  rich  man 
benefits  more  largely  by  life  and  liberty  than  does  the  poor  man,  taxes 
for  the   performance  of  this   function  should  be  distributed  equally; 
and  a  heavy  poll  tax  would  be  in  order.     Taxes  for  the  protection  of 
property  might,  indeed,  be  larger  in  the  case  of  the  rich  man  than  in 
that  of  the  poor  man,  but  it  is  not  certain  that  they  would  be  larger 
in  proportion  to  the  amount  of  property  held.     As  regards  expendi- 
tures for  education  it  would  seem  that,  ignoring  all  public  benefit,  the 
poor  man  benefits  more  largely  than  does  the  rich,  partly  because  the 
poor  man,  generally  speaking,  has  more  children,  and  partly  because 
the  rich  man  is  better  able  to  provide  for  his  own.     The  rich  bachelor 
would,  of  course,  escape  taxation  on  this  account  entirely.     From  these 
examples  alone  it  will  be  seen  that  taxation  according  to  the  benefit 


SOME  FUNDAMENTAL  PRINCIPLES  11 

that  can  be  traced  is  impracticable.  Not  only  would  it  violate  our 
sense  of  justice;  but  it  would  make  impossible  many  expenditures 
necessary  to  build  up  a  great  and  prosperous  commonwealth. 

Upon  the  whole  the  most  satisfactory  basis  for  taxation  seems 
to  be  ability.  If  each  contributes  to  the  common  expenses  according 
to  his  ability  it  would  seem  that  the  sacrifice  or  hardship  resulting 
from  the  burden  would  be  as  small  as  possible,  and  that  many  very 
desirable  expenditures  could  be  made  which,  under  any  other  system, 
would  be  impracticable.  Considering  the  nature  of  the  expenses  de- 
frayed by  taxation,  apportionment  according  to  ability  seems  to  be 
consonant  with  justice.  Where  the  benefits  of  a  given  line  of  ex- 
penditure accrue  chiefly  to  a  given  community  or  class  special  taxes 
may  be  imposed ;  but  within  that  community  or  class  they  should  be 
apportioned  on  the  basis  of  ability. 

To  taxes  laid  on  this  basis  the  objection  is  sometimes  raised  that 
they  place  a  penalty  on  success.  Now,  it  may  be  admitted  that  taxes 
may  be  laid  in  such  a  way  as  to  discourage  thrift,  energy,  and  en- 
terprise. If,  however,  they  are  actually  laid  according  to  ability  they 
do  not  really  fall  more  heavily  upon  the  successful  man  than  upon 
the  unsuccessful.  The  former,  indeed,  pays  a  larger  amount  but  the 
burden  is  no  greater  than  in  the  case  of  the  latter.  Moreover,  aside 
from  the  question  of  justice,  the  taxation  of  inability  and  failure  would 
hardly  be  satisfactory  from  a  revenue  point  of  view.  To  be  sure,  it 
is  not  desirable  to  tax  thrift  and  exempt  extravagance;  but  neither  is 
this  taxation  according  to  ability.  In  some  cases  men  come  into  pos- 
session of  wealth  that  they  have  not  earned.  In  so  far  as  this  is  done 
illegitimately  taxation  is  hardly  a  proper  method  of  dealing  with  the 
situation.  So  far  as  such  wealth  is  legitimately  acquired  it  may  be 
regarded  as  conferring  a  special  measure  of  ability.  Cases  of  this 
sort,  however,  at  least  in  the  opinion  of  the  author,  are  much  less 
important  than  is  sometimes  supposed. 

§3.  More  than  a  century  ago  Adam  Smith  set  forth  four  canons 
of  taxation  which  have  since  become  famous.  These  are  equality, 
certainty,  convenience,  and  economy." 

Smith  defined  equality  in  taxation  as  taxation  according  to  abil- 
ity, "that  is"  in  proportion  to  the  revenue  enjoyed  under  the  protec- 
tion of  the  state.  With  the  view  that  taxation  should  be  according  to 
ability  we  can  heartily  agree,  but  that  this  can  be  attained  by  taxa- 
tion in  proportion  to  income  is  at  least  open  to  question.     An  income 

s"Wealth  of  Nations."  Bk.  V..  Ch.  II..  Ft.  II. 


12  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

of  $500  a  year  is  insufficient  to  decently  maintain  a  normal  family, 
and  it  would  seem  that  a  man  with  an  income  of  $5,000  would  be  in 
a  much  better  position  to  pay  $50  than  a  man  with  $500  would  be  to 
pay  $5.  Upon  the  whole  it  would  seem  that  ability  increases  more 
rapidly  than  income,  and  that  taxation  should  be  "progressive" ; 
that  is,  the  rate  should  increase  with  the  increase  in  income.  Just  how 
much  more  rapidly  it  should  increase  is  a  difficult  question;  and  it 
must  be  admitted  that  we  have  not  sufficient  data  to  make  possible  a 
satisfactory  answer.  Nor,  as  we  shall  see  in  a  few  moments,  is  this 
the  only  difficulty  with  income  as  a  measure  of  ability. 

It  should  be  noticed  that  the  canon  of  equality  applies  to  the 
tax  system  as  a  whole,  rather  than  to  any  particular  tax.  It  is  a 
small  matter  if  one  tax  falls  more  heavily  on  one  set  of  people  and 
another  on  another,  provided  that  the  final  result  is  that  each  pays 
taxes  according  to  his  ability. 

The  other  three  canons,  while  important,  are  so  obvious  that  they 
can  be  dismissed  with  brief  comment.  They  apply,  not  merely  to  the 
tax  system  as  a  whole,  but  to  each  tax.  By  certainty  is  meant  that 
the  tax  that  each  is  called  upon  to  pay  should  not  be  arbitrary  or 
left  to  the  discretion  of  officials.  The  taxpayer  should  know  just 
how  much  he  has  to  pay,  when,  where,  and  to  whom.  So  important 
did  Smith  regard  this  canon  that  he  held  a  considerable  degree  of 
inequality  to  be  a  much  smaller  evil  than  a  small  degree  of  uncer- 
tainty. The  canon  of  convenience  states  that  the  conditions  of  pay- 
ment should  be  made  as  convenient  as  possible  to  the  taxpayer.  Final- 
ly, the  canon  of  economy  requires  that  the  tax  should  take  out  and 
keep  out  of  the  pockets  of  the  people  as  little  as  possible  over  and 
above  what  it  puts  into  the  treasury.  This  means  that  it  should  be 
inexpensive  to  collect  and  should  not  unnecessarily  obstruct  indus- 
try, offer  the  temptation  to  risk  the  penalties  of  evasion,  or  subject 
the  taxpayer  to  annoying  inquisition. 

§4.  A  very  important  distinction  is  that  between  direct  and 
indirect  taxation.  Unfortunately  there  is  no  single  clear-cut  defini- 
tion of  either  of  these  terms.  Among  all  disagreements,  however,  two 
ideas  stand  out  with  special  prominence.  The  first  of  these  may  be 
called  the  economic  and  the  second  the  administrative  point  of  view. 
According  to  the  economic  definition,  a  direct  tax  is  one  the  burden  of 
which  rests  upon  the  person  from  whom  it  is  collected.  Generally 
speaking,  this  is  true  of  an  income  tax.  An  indirect  tax  is  one  the 
burden  of  which  is  shifted  from  the  person  who  pays  it  in  the  first 


SOME  FUNDAMENTAL  PRINCIPLES  13 

instance  to  someone  else.  A  customs  duty,  for  example,  is  collected 
from  the  importer,  but  usually  it  is  shifted,  in  the  form  of  increased 
prices,  to  the  ultimate  consumer.  From  the  administrative  point  of 
view  a  direct  tax  is  one  that  can  be  calculated  in  advance  and  lists  of 
taxpayers  prepared.  This  is  true  of  the  general  property  tax.  An 
indirect  tax  is  one  that  is  laid  upon  some  circumstance,  act,  or  event, 
such  as  the  number  of  gallons  of  whisky  distilled.  The  two  ideas 
are,  perhaps,  best  brought  out  when  it  is  said  that  the  economic  defi- 
nition turns  on  the  incidence  of  taxation,  the  administrative  on  the 
possibility   of   using  tax   rolls. 

In  considering  equality  in  taxation  the  economic  point  of  view  is 
the  more  important.  The  study  of  the  incidence  of  taxation  is  an 
exceedingly  difficult  one,  but  it  is  possible  to  lay  down  a  few  general 
principles.  Ordinarih^  a  tax  can  be  shifted  only  if  the  person  from 
whom  it  is  collected  can  raise  the  price  at  which  he  sells  goods  or 
services,  or  lower  the  price  at  which  he  buys  them.  Since  price  de- 
pends on  demand  and  supply  it  is  only  when  the  conditions  of  demand 
or  supply  are  affected  that  the  tax  can  be  shifted.  Even  then  the 
shifting  may  take  place  slowly,  so  that  the  incidence  of  an  old  tax 
may  be  different  from  that  of  a  new  one  similar  in  character. 

Suppose,  for  example,  that  a  tax  of  a  given  per  cent  is  laid  on 
the  rental  value  of  all  land,  and  collected  from  the  owner.  Obviously 
the  demand  for  land  is  not  affected.  Neither  is  supply.  Clearly  the 
quantity  of  land  remains  the  same.  The  owners  would  gain  nothing  by 
taking  it  off  the  market.  To  be  sure  the  rent  left  to  the  owner  is 
reduced  by  the  amount  of  the  tax,  but  if  he  withholds  the  land  from 
use  he  will  get  no  rent  at  all,  and  meanwhile  he  will  have  to  pay  the 
tax.  If  he  tries  to  sell  the  land  the  price  he  can  get  for  it  will  be 
lower  by  reason  of  the  tax.  The  tax  will  therefore  rest  upon  the 
owner.      It   will   not   be   shifted. 

Suppose  noAv  a  tax  is  laid  on  the  rental  value  of  houses,  but  not 
on  that  of  other  forms  of  capital.  The  building  of  houses  becomes 
less  profitable.  Fewer  houses  will  therefore  be  built,  and  if  de- 
mand is  not  increasing,  some  of  tlie  old  ones,  as  they  become  unfit  for 
use,  will  not  be  replaced.  In  either  case  the  supply,  at  the  old  price, 
will  not  be  equal  to  the  demand.  The  rent  that  will  be  paid  for  the 
use  of  a  house  will  therefore  rise  and  the  tax  will  be  shifted,  at  least 
in  part  on  the  tenant. 

Muclu  however,  depends  on  the  universality  of  the  tax.  If  it 
were  laid  on  every  possible  line  of  investment   in   proportion  to  the 


14  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

ability  that  each  represents  and  successfully  administered,  there  would 
be  no  investment  to  which  capital  could  turn  to  escape  the  tax.  Only 
so  far  as  the  result  was  a  reduction  of  saving,  and  therefore  a  reduc- 
tion in  the  supply  of  capital  would  the  tax  be  shifted.  If  the  tax 
were  reasonable  in  amount  the  effect  would  probably  be  slight  and  the 
tax  would  be  shifted  only  in  a  small  degree  if  at  all. 

An  excellent  illustration  is  furnished  by  the  attempt  to  tax  invest- 
ment securities.  Mortgages  are  matters  of  record  and  they  can  there- 
fore be  found  by  the  assessors.  Stocks  and  bonds  are  very  difficult — 
in  many  cases  practically  impossible — to  reach.  In  any  event  capital 
can  leave  the  taxing  jurisdiction.  The  result  has  been  that  men  with 
money  have  preferred  to  invest  it  in  forms  that  escape  taxation.  In- 
terest on  mortgages  has  risen,  not  merely  by  the  amount  of  the  tax, 
but  by  an  additional  amount  to  cover  the  cost  of  shifting. 

§5.  Indirect  taxes  have  some  great  advantages.  They  are  gen- 
erally convenient  and  are  commonly  easy  to  administer.  The  very 
fact  that  they  can  be  shifted  reduces  the  temptation  to  evasion.  They 
can  be  made  to  yield  a  large  revenue  as  is  shown  by  the  taxes  imposed 
by  the  United  States,  most  of  which  are  indirect.  The  shifting  of  taxa- 
tion tends  to  remedy  certain  inequalities  since  if  any  line  of  business 
is  unduly  taxed  it  is  very  likely  that  prices  will  rise  and  the  tax 
be  shifted  to  the  consumer. 

Right  here  arises  a  serious  difficulty :  the  ultimate  incidence  of  the 
tax  may  be  very  unjust.  Taxes  on  commodities,  for  example,  if  they 
are  to  raise  a  large  revenue,  must  ordinarily  be  laid  on  articles  of 
wide  consumption.  For  these  the  poor  pay  a  larger  percentage  of 
their  income  than  do  the  rich,  and  the  tax  therefore  falls  more  heavily 
on  them.  There  are  some  articles  of  luxury  from  the  taxation  of 
which  a  considerable  amount  of  revenue  can  be  raised,  but,  upon  the 
whole,  taxes  on  luxuries  are  less  likely  to  be  highly  productive  than 
taxes  on  the  ordinary  comforts  and  necessities  of  the  people.  Not  only 
are  the  total  sales  of  the  former  likely  to  be  relatively  small,  but 
the  tax,  if  heavy,  may  result  in  a  considerable  reduction  in  the  num- 
ber of  sales. 

It  is  possible  that  a  system  of  indirect  taxes  might  be  devised 
that  would  be  fairly  equal  in  its  operation.  Where  the  shifting  of 
the  tax  can  be  followed  and  the  incidence  determined  with  a  rea- 
sonable degree  of  accuracy  the  inequality  may  be  a  small  matter, 
since  taxes  that,  considered  by  themselves,  err  in  one  direction  may  be 
offset  by  taxes  that,  considered   by  themselves,   err  in  the   other  di- 


SOME  FUNDAMENTAL  PRINCIPLES  15 

rection.  In  general,  indirect  taxes  are  likely  to  fall  with  undue  weight 
on  the  poor  or  moderately  well  to  do ;  but  direct  taxes  may  be  made 
to  fall  chiefly  on  the  rich.  One  of  the  chief  reasons  for  the  federal 
income  tax,  with  its  very  high  exemption  and  its  progressive  rates, 
was  the  desire  to  offset  the  regressive  character  of  the  other  federal 
taxes.  It  can,  however,  hardly  be  regarded  as  more  than  a  step  in 
the  right  direction. 

Even  when  the  difficulty  due  to  the  natural  inequality  of  indirect 
taxes  is  satisfactorily  dealt  with,  other  difficulties  remain.  One  of  the 
most  serious  of  these  is  the  fact  that  the  burden  of  indirect  taxes  is 
not  fully  realized  by  the  ordinary  taxpayer.  It  may  appear  to  some 
that  this  is  not  wholly  an  evil.  If  a  man  does  not  know  that  he  is 
being  taxed,  it  may  be  said,  he  does  not  feel  the  burden.  The  trouble 
is  that  he  does  feel  it,  although  he  does  not  recognize  its  character. 
It  is  apt  to  show  itself  in  the  "high  cost  of  living,"  and  this  he  feels 
keenly  enough.  It  may  be  possible  to  demonstrate  to  him  the  fact 
that  taxation  is  an  element  in  the  high  cost  of  living;  but  it  is  more 
difficult  to  make  him  realize  it;  and  consequently  he  is  less  likely  to 
appreciate  the  importance  of  economy  in  public  affairs.  One  of  the 
great  faults  of  indirect  taxation  is  that  it  conceals  the  facts. 

Now,  if,  in  a  community  in  which  practically  every  citizen  who 
has  attained  his  majorit}'  has  the  right  to  vote,  it  be  held  that  the 
people,  when  they  realize  the  burden,  cannot  be  trusted  to  approve 
expenditures  necessary  for  the  public  welfare;  or  if  it  be  held  that 
they  will  provide  tax  laws  that  are  grossly  unjust;  there  is  much  to  be 
said  in  favor  of  relying  mainly  on  indirect  taxation.  If,  however, 
these  premises  are  rejected  it  seems  highly  desirable,  not  only  that 
every  citizen  should  pay  taxes  according  to  his  ability,  but  that  he 
should  know  that  he  pays.  That  such  a  condition  should  exist,  at 
least  in  a  large  measure,  seems  to  be  essential  if  democratic  govern- 
ment is  to  be  regarded  as  a  success.  As  a  practical  proposition  this 
implies  that  every  citizen  should  pay  a  direct  tax,  varying  in  amount 
with  the  public  expenditures. 

It  may  frankly  be  admitted  that  the  ideal  can  hardly  be  fully 
attained,  at  any  rate  under  existing  circumstances.  Even  if  it  were 
not  true  that  taxes  intended  to  be  direct  are  in  fact  often  shifted,  it 
would  be  difficult  to  devise  appropriate  direct  taxes,  especially  where 
there  is  as  much  poverty  as  exists  today.  In  many  cases  the  amount 
of  the  tax  would  be  so  small  that  it  would  hardly  be  worth  the  cost 
of  collecting  it.     Nevertheless,  in  any  consideration  of  the  reform  of 


16  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

the  tax  system  the  ideal  should  be  kept  in  mind,  and  as  nearly  as 
possible  realized. 

§6.  Two  important  and  more  or  less  closely  related  characteris- 
tics of  a  good  tax  are  stability  and  elasticity.  In  so  far  as  the  needs  of 
the  government  are  constant,  or  are  changing  in  a  regular  manner  it 
should  be  unnecessary  to  make  changes  in  the  form  or  rate  of  the  tax. 
Taxes  that  vary  greatly  with  every  change  in  conditions  are  seriously 
defective.  Moreover,  the  taxing  authority  should  know,  at  the  time 
provision  is  made  for  the  tax,  at  least  approximately  how  much  it 
will  yield.  Otherwise  the  treasury  is  practically  certain  to  be  con- 
fronted with  a  surplus  or  a  deficit.  Our  experience  has  been  that  the 
former  is  a  strong  temptation  to  extravagance.  On  the  other  hand 
a  deficit  is  likely  to  be  expensive  since  it  ordinarily  implies  public 
borrowing  in  some  form  or  other.  Under  conditions  that  make  bor- 
rowing difficult  it  might  well  prove  dangerous.  In  the  second  place, 
some  variation  is  necessary,  for  the  amount  of  public  expenditures 
cannot  be  kept  constant.  There  should  therefore  be  at  least  one  tax 
in  the  system  that  can  readily  be  adjusted  to  meet  the  needs  of  the 
state.  Stability  and  elasticity  are  not  necessarily  contradictory  vir- 
tues. Where  the  first  is  present  the  revenue  will  not  vary  greatly, 
though  it  may  grow  with  the  development  of  the  community,  unless  a 
change  is  made  in  the  form  or  rate.  Where  the  second  virtue  is  pres- 
ent a  change  in  the  form  or  rate  can  be  made,  if  necessary,  with  some 
confidence  as  to  the  result. 

Stability  can  best  be  attained  by  imposing  the  tax  on  some  stable 
base,  that  is  on  a  subject  that  remains  fairly  constant,  or,  better,  grows 
with  the  development  of  the  community  but  does  not  vary  with  short 
time  fluctuations.  In  this  respect  property  is  a  better  base  than  in- 
come, although  from  some  points  of  view  income  taxes  are  to  be  pre- 
ferred to  property  taxes.  Stability  in  taxation  implies,  of  course, 
that  the  burden  will  be  heavier  in  times  of  depression  than  in  times 
of  prosperity.  This  is  an  evil,  but  it  cannot  well  be  avoided  under 
any  system.  It  is  practicable  only  to  a  very  limited  extent  to  adjust 
expenditure  to  income. 

It  may  be  said  that  this  is  what  the  individual  or  the  private 
business  must  do ;  but  there  is  a  very  important  difference.  The  in- 
vidual  who  spends  his  entire  income  as  fast  as  he  receives  it  is 
either  pursuing  a  very  unwise  policy  or  is  acting  under  the  pressure 
of  a  very  unfortunate  necessity.  In  either  case  the  result  is  likely  to 
be  disaster.     A  successful  business  is  ordinarily  run  at  a  profit  that 


SOME  FUNDAMENTAL  PRINCIPLES  17 

can  be  temporarily  reduced  without  bringing  ruin ;  and,  even  so,  it 
is  bad  business  policy  to  divide  the  entire  profit  each  year,  leaving 
nothing  for  emergencies.  The  state,  however,  endeavors,  as  a  rule, 
to  collect  each  year  by  taxation  only  the  amount  needed  for  current 
expenditures.  Modern  governments  are  not  well  ada))ted  to  the  han- 
dling of  reserves.  The  duty  of  carrying  reserves  is  left  to  the  people. 
The  individual  should  regard  taxes  as  one  of  his  most  necessary 
expenses,  and  it  is  not  primarily  upon  these  that  the  results  of  a 
temporary  reduction  of  income  falls. 

One  method  of  adjusting  public  revenue  to  expenditure  is  by 
the  apportionment  of  the  tax.  By  this  is  meant  that  the  taxing 
authority  does  not  directly  fix  the  rate  at  which  the  tax  shall  be  im- 
posed, but  determines  instead  the  amount  of  money  to  be  raised, 
leaving  to  administrative  officials  the  calculation  of  the  necessary  rate. 
This,  of  course,  brings  about  a  fairly  accurate  adjustment,  and  if  the 
subjects  of  taxation  are  well  chosen  does  not  necessarily  mean  violent 
fluctuations,  although  uncertainty  here  is  substituted  for  uncertainty 
in  the  amount  of  revenue.  As  has  already  been  pointed  out,  however, 
the  need  for  elasticity  makes  it  important  that  there  be  at  least  one 
tax  the  rate  of  which  can  be  changed  frequently  without  excessive 
hardship  or  inconvenience.  The  practicability  of  apportioning  a  tax 
implies  some  measure  of  elasticity.  Apportionment,  however,  is  pos- 
sible only  in  the  case  of  certain  kinds  of  taxes.  The  inheritance  tax  is 
almost  necessarily  rated — that  is,  the  rate  is  definitely  fixed  by  law. 
It  is  hard  to  see  how  it  could  justly  be  otherwise.  Very  much  the 
same  thing  may  be  said  of  indirect  taxes. 

§7.  There  is  no  one  tax  that  is  entirely  satisfactory  from  every 
point  of  view  and  for  this  reason,  if  for  no  other,  a  system  of  taxa- 
tion is  better  than  anv  single  tax.  If  it  were  necessarv  to  relv  on 
one  tax  exclusively,  an  income  tax  would  doubtless  be  the  best,  though 
it  would  be  far  from  satisfactory.^  Even  if  such  a  tax  were  made 
progressive,  it  would  not  allow  for  differences  in  taxpaying  ability, 
for  ability  does  not  depend  merely  on  the  size  of  one's  income.  Much 
depends  on  necessary  expenses,  which  are  not  the  same  for  all  per- 
sons. Some  allowance  may,  indeed,  be  made  for  dependents,  but  this 
meets  the  difficulty  only  in  a  rough  and  partial  way.  A  man's  neces- 
sary expenses  depend,  in  part,  on  the  circumstances  under  which  he 
lives  and  works,  on  his  health,  on  the  cost  of  living  in  the  community, 
and   on   the   profession,   trade,   or   business    in    which   he    is   engaged. 

'For  a  fuller  discussion  see  Sellgman,  "The  Income  Tax.'  pp.  15ff. 


IS  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

Something  should  be  allowed  for  savings  against  old  age  or  other  dis- 
ability. The  source  of  income  is  not  a  matter  of  indifference.  A 
secure^  permanent  income,  independent  of  the  exertions  of  the  re- 
cipent,  represents  a  larger  degree  of  ability  than  does  a  precarious 
cne,  and  personal  earnings  are  more  or  less  precarious.  The  receipts 
from  an  inheritance  may  properly  be  regarded,  at  least  in  the  case  of 
collateral  inheritances,  as  giving  a  special  measure  of  ability.  Indeed, 
it  would  be  difficult  to  enumerate  all  the  circumstances  that  should  be 
taken  into  account. 

If  public  expenses  were  so  small  that  only  a  very  moderate  rate 
of  taxation  need  be  imposed  these  inequalities  might  be  regarded  as  a 
negligible  matter.  In  fact,  however,  the  burden  of  taxation  is  heavy, 
,ind  in  all  probability  it  will  continue  to  be  so.  The  benefits  resulting 
from  public  expenditure  may  far  outweigh  the  cost,  but  the  cost  is 
so  great  as  to  make  its  just  distribution  a  matter  of  importance.  In 
a  properly  devised  system  of  taxation  sources  of  ability  will  be  reached 
that  cannot  be  reached  by  any  one  tax.  As  a  consequence,  where  each 
tax  is  but  a  part  of  a  system  its  faults  will  be  less  severely  felt 
than  if  it  were  the  sole  source  of  public  revenue.  It  is  unlikely  that 
the  inevitable  faults  of  each  tax  will  injuriously  affect  the  same  in- 
dividual. 

There  is  one  other  weakness  of  any  single  tax  that  must  be  taken 
into  account.  As  the  rate  is  increased,  the  temptation  to  evasion  be- 
comes stronger,  and  the  administration  of  the  tax  more  difficult.  The 
man  who  will  cheerfully  submit  to  assessment  for  a  tax  that  will  take 
only  one  per  cent  of  his  income  will  generally  be  more  reluctant  when 
the  rate  is  five  per  cent.  When  it  reaches  ten  per  cent  evasion,  and 
perhaps  perjury,  are  likely  to  be  common.  Before  it  reaches  twenty 
per  cent  administrative  success,  in  most  cases,  at  least  where  the  tax 
cannot  be  shifted,  is  hardly  to  be  expected.*  Even  in  the  case  of 
land,  which  cannot  be  hidden,  there  is  the  serious  problem  of  valuation. 
Where  a  system  comprising  a  number  of  taxes  is  used  this  difficulty 
is  greatly  reduced.  The  gain  to  be  derived  from  the  evasion  of  any 
one  tax  is  relatively  small. 

§8.  Any  discussion  of  reliance  on  one  tax  would  be  incomplete, 
especially  under  the  conditions  existing  in  Washington,  without  some 
reference  to  the  single  tax  on  land  values  or  land  rent.^     Now  it 

*A  property  tax  of  20  mills  on  full  value  (or  40  mills  on  a  fifty  per  cent 
valuation)  would,  if  the  property  yielded  the  very  higrh  return  of  ten  per 
cent,  be  a  tax  of  twenty  per  cent  on  the  income  from  that  property. 

'For  a  much  more  extended  discussion  see  Seligman,  "Essays  in  Tax- 
ation"  (eighth  edition),  Ch.  III. 


SOME  FUNDAMENTAL  PRINCIPLES  19 

should  be  clearly  realized  that  the  proposal  of  Henry  George  and 
his  followers  is  not  primarily  a  fiscal  matter,  but  a  fundamental 
social  reform,  a  panacea  for  all  social  ills."  It  rests  upon  the  theory 
that  private  property  in  land  is  wrong.  Single  taxers  do,  indeed, 
make  much  of  the  fact  that  they  do  not  propose  to  do  away  with  the 
private  use  of  land  or  legal  title  to  it.  They  would  simply  take  the 
entire  economic  rent.  In  other  words,  they  would  allow  the  form 
of  private  ownership  to  remain,  but  the  "owner"  would  really  be  in 
the  position  of  a  tenant  having  a  transferable  lease  indefinite  in  dura- 
tion, but  with  the  rent  subject  to  frequent  adjustment  by  the  state. 
Among  the  specific  evils  from  which  they  believe  our  social  ills  flow 
are  the  withholding  of  land  from  use,  speculation  in  land,  and  the 
receipt  of  an  unearned  income. 

There  are,  however,  many  who  call  themselves  single  taxers  who 
do  not  go  to  the  same  lengths  as  Henry  George,  either  in  their  pro- 
posals or  in  their  anticipations  of  results.  They  look  at  the  matter 
more  largely  from  a  fiscal  point  of  view,  though  ordinarily  the  idea 
of  social  reform  is  not  absent,  and  in  many  cases  it  is  strong.  They 
would  not  necessarily  confine  taxation  to  land  values  nor  would  they 
take  the  entire  rent.  In  some  cases  their  position  is  less  one  in  favor 
of  the  single  tax  than  in  opposition  to  inequalities  and  injustices  of 
the  general  property  tax. 

With  the  single  tax  as  a  social  reform  we  are  not  here  con- 
cerned, and  anything  like  an  adequate  discussion  of  it  would  carry  us 
far  afield.  If  the  theories  of  Henry  George  and  his  followers  be 
correct — and  that  they  are  even  substantially  correct  very  few,  if  any, 
recognized  economists  believe — their  proposals  should,  of  course,  be 
adopted.  This  would,  perhaps,  make  real  taxation  unnecessary,  for 
the  state  would,  in  effect  at  least,  become  the  owner  of  all  the  land 
and  would  receive  rent.  If  the  more  moderate  "single  taxers"  be 
right — and  even  this  is  not  here  admitted — a  combination  of  social 
reform  with  taxation  may,  perhaps,  be  justified.  The  result,  how- 
ever, would  not  be  the  single  tax. 

«"What  I.  therefore,  propose  as  tlie  simple  yet  sovereign  remedy  which 
will  raise  wages,  increase  the  earnings  of  capital,  extirpate  pauperism, 
abolish  poverty,  give  remunerative  employment  to  whoever  wishes  it,  af- 
ford free  scope  to  human  progress,  lessen  crime,  elevate  morals,  and  taste, 
and  intelligence,  purify  government  and  carry  civilization  to  yet  nobler 
heights,  is — to  appropriate  rent  by  taxation."  George,  "Progress  and  Pov- 
erty," Bk.  III.,  Ch.  II.  For  a  recent,  but  less  sweeping  view,  see  Bolton 
Hall,  "Taxation  of  Land  as  a  Remedy  for  Unemployment,"  Annals  of  the 
American  Academy  of  Political  and  Social  Science,  Vol.  LIX.  (May,  1915), 
pp.    148-156. 


20  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

The  idea  that  the  income  from  land  is  unearned  is  so  widely  held 
that  a  few  words  of  comment  are  desirable.  In  the  opinion  of  the 
author,  the  idea  contains  some  truth,  though  not  nearly  as  much  as 
is  sometimes  supposed.  So  far  as  the  income  is  unearned  it  may  be 
regarded  as  furnishing  a  special  measure  of  ability  which  may  very 
properly  be  subjected  to  taxation.  In  this  respect,  however,  the 
income  from  land  does  not  stand  alone.  There  are  a  number  of  social 
institutions  and  conditions  from  which  individuals  receive  a  benefit 
that  is,  in  much  the  same  sense,  unearned.  Inheritance,  particularly 
in  the  case  of  collateral  relatives,  is  one  of  these.  It  is  only  by  a 
great  strain  of  language  that  certain  incomes  from  natural  monopolies 
can  be  brought  under  the  single  tax.  These  are  but  a  few  of  the 
most  obvious  instances.  If  we  were  to  examine  the  meaning  of 
the  term  "earn"  it  is  quite  possible  that  we  should  come  to  the 
conclusion  that  there  are  substantially  no  incomes  that  are  not,  at 
least  in  part,  unearned.  Even  if  the  term  be  not  taken  so  broadly, 
however,  the  attempt  to  reach  the  unearned  incomes  only  would  result 
in  a  somewhat  complicated  system  of  taxation ;  but  ability,  however 
great,  if  it  rested  on  earnings,  would  be  exempt. 

It  must  not,  of  course,  be  inferred  that  land  values  are  not  one 
very  good  subject  for  taxation;  and,  as  we  shall  see  there  are  very 
few  subjects  in  the  State  of  Washington  that  are  today  more  heavily 
taxed.  Neither  must  what  has  been  said  in  regard  to  the  single  tax 
on  land  values  be  taken  as  a  defense  of  the  existing  system. 

§9.  A  system  of  taxation  might  well  contain  a  number  of  taxes 
that,  considered  by  themselves,  would  be  far  from  satisfactory.  Taxes 
that,  used  alone  would  be  very  unequal  in  their  operation  might  be  so 
combined  as  to  secure  a  substantially  just  result.  It  is  not  necessary 
that  every  tax  be  elastic.  There  are  many  which  are  weak  in  this 
respect,  but  very  good  from  other  points  of  view.  There  are  other 
taxes  that  are  well  suited  to  securing  the  necessary  elasticity.  Even 
indirect  taxes  may  properly  be  used  to  a  limited  extent.  They  can 
generally  be  so  imposed  as  to  satisfy  fairly  well  the  canons  of  conve- 
nience, certainty,  and  economy.  Confined  to  a  proper  place  in  the 
system  they  do  not  necessarily  offend  grievously  against  the  canon  of 
equality.  As  a  practical  matter  they  can  sometimes  be  used  to  reach 
certain  cases  of  ability  that  cannot  well  be  reached  by  any  other 
method. 

The  tax  system  should  be  composed  of  a  number  of  taxes  so 
chosen  that  the  unavoidable  defects  of  each  will,  so  far  as  is  prac- 


SOME  FUNDAMENTAL  PRINCIPLES  21 

ticable,  be  offset  by  one  or  more  of  the  others.  The  end  should  be 
to  tax  each  person  sharing  in  the  benefits  of  the  state  according  to  his 
ability.  No  one  tax  should  be  so  heavy  as  to  put  an  undue  strain  on 
the  administrative  machinery.  It  is  sufficient,  as  regards  some  taxes, 
that  they  be  steady  and  reliable.  Others  should  be  readily  capable  of 
adjustment  and  these — at  least  so  far  as  unlimited  democracy  is  de- 
sirable— should  be  universal  in  their  application  and  of  such  a  char- 
acter as  to  make  clear  to  the  voters  the  relation  between  public  econ- 
omv  and  the  burden  of  taxation. 


Chapter  III. 

THE   GENERAL   PROPERTY   TAX: 

Scope;  Levy;  and  Collection 

§1.  By  the  "general  property  tax"  is  meant  a  tax  upon  the  own- 
ers of  property  in  proportion  to  its  value.  There  may  be  a  few  ex- 
emptions and  a  few  kinds  of  property  may  receive  special  treatment, 
but  these  are  merely  exceptions  to  the  general  rule.  Aside  from  these 
the  rate  is  the  same  whatever  the  kind  of  property  held.  Where 
property  is  divided  into  classes  on  which  different  rates  are  imposed 
we  have  a  classified,  rather  than  a  general,  property  tax.  Sometimes 
we  hear  of  a  progressive  general  property  tax,  under  which  the  rate 
increases  with  the  amount  of  property  held  by  one  taxpayer.  In  this 
country  the  rate  is  the  same  whatever  the  amount  of  property,  save 
only  that  in  some  cases  there  is  a  moderate  exemption.  The  exemp- 
tion does,  indeed,  give  the  tax  a  somewhat  progressive  character;  but 
the  effect  is  so  slight  that  there  is  no  substantial  inaccuracy  in  saying 
that  the  tax  is  proportional  rather  than  progressive. 

§2.  The  taxation  of  property  is  one  of  the  oldest  and,  his- 
torically at  least,  one  of  the  most  widespread  forms  of  taxation.  It  is 
said  that  the  general  property  tax,  or  something  closely  resembling  it, 
has  been  tried  in  every  civilized  country  existing  today. ^  As  one  of 
the  chief  sources  of  revenue,  however,  it  has  been  abandoned  in 
nearly  all  of  them,  though  it  still  survives  in  Australia,  in  some  of 
the  Swiss  cantons  and,  at  least  as  a  local  tax,  in  most  of  the  American 
states.  The  working  of  the  general  property  tax  has  been  repeatedly 
examined  in  many  places  by  tax  commissioners  and  by  academic  in- 
vestigators. With  an  approach  to  unanimity  that  is  rarely  attained 
in  such  important  matters  of  governmental  policy  they  have  con- 
demned it  as  unjust,  and  impossible  of  administration  in  accordance 
with  the  intent  of  the  law. 

It  need  not  be  supposed  that  the  general  property  tax  was  always 
as  unjust  and  impractical  as  it  is  today.  Many  of  the  American  states 
in  which  it  still  exists  adopted  it  in  their  infancy,  some  of  them  while 
they  were  still  British  colonies,  though  ordinarily  it  was  associated 
with  a  poll  tax.     In  New  England  it  developed  from  a  real  property 

'For  a  disfussion  of  the  general  property  tax  in  history,  as  well  as 
in  its  present  day  working  and  in  theory,  see  Seligman,  "Essays  in  Tax- 
ation (8th  edition),  Ch.  II. 

(22) 


THE  GENERAL  PROPERTY  TAX  23 

tax  and  was  supplemented  by  a  "faculty  tax"  designed  to  reach  those 
whose  ability  to  pay  depended  on  earnings  from  personal  exertions 
rather  than  on  the  possession  of  property.  In  most,  if  not  all,  of  the 
states  at  the  time  of  their  adoption  of  the  general  property  tax  eco- 
nomic conditions  were  relatively  simple ;  the  expenses  of  government 
were  comparatively  small ;  property  consisted,  for  the  most  part,  of 
land  and  of  goods  that  were  locally  owned,  easily  found,  and  easily 
valued ;  there  were  few,  if  any,  great  business  corporations ;  and  the 
distribution  of  wealth  and  of  income  were  much  more  nearly  equal 
than  they  are  today.  Under  such  conditions  the  general  property  tax 
was  a  natural  and,  upon  the  whole,  a  simple  one.  The  difficulty  of 
assessing  certain  kinds  of  personalty,  however,  was  felt  almost  from 
the  first;  and  in  Massachusetts,  as  early  as  1651,  we  find  a  special 
attempt,  which  apparently  was  not  very  successful,  to  deal  with  the 
property  of   "marchants,  shopkeep.s   and   factors. "- 

§3.  At  the  time  when  a  territorial  government  was  organized 
in  Washington  the  general  property  tax  was  the  form  of  taxation  most 
used  by  the  states.  It  is  therefore  not  surprising  to  find  in  the  or- 
ganic act,  passed  by  Congress  in  1853,  the  provision: 

"And  all  taxes  shall  be  equal  and  uniform ;  and  no  distinctions 
shall  be  made  in  the  assessments  between  the  different  kinds  of 
propertv,  but  the  assessments  shall  be  made  according  to  the  value 
thereof.'"^ 

Under  this  provision  the  Legislative  assembly,  at  its  first  session, 
held  in  1854,  passed  an  act  for  the  taxation  of  property  "valued  in 
equal  and  rateable  proportion."  Exemptions  were  allowed  in  the  case 
of  religious  societies,  benevolent,  charitable,  literary,  and  scientific  in- 
stitutions, the  territory  and  its  counties,  school  houses  and  school  lands, 
public  libraries,  places  of  burial,  and  Indians.*  As  was  commonly 
the  case  elsewhere,  the  property  tax  was  associated  with  a  poll  tax,  but 
it  was  provided  that  this  should  go  to  the  county. 

Since  the  passage  of  this  act  the  primitive  frontier  territory  with 
a  population,  at  its  first  census,  of  11,594  has  grown  to  a  great,  highly 
organized  state  with  a  population,  at  the  last  census,  of  1,141,990. 
The  simple  economic  conditions  have  given  place  to  conditions  of 
great  complexity.  Wealth  has  multiplied  many  times  in  amount;  it 
has  assumed  a  vastly  enlarged  variety  of  forms ;  and  the  inequality  in 
its  distribution  has  increased.     Great  railroads  have  been  built,  mak- 

-Seligman,  loc.  cit.,  p.   23. 

'I,   "Laws  of  Washington,"   p.   36. 

^Ibid.,  p.   331. 


24  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

ing  it  possible  to  maintain  close  business  and  social  relations  with 
the  rest  of  the  country.  Among  the  producers  of  wealth  are  large 
corporations,  some  of  which  have  their  headquarters  and  much  of 
their  property  in  other  states. 

Amid  all  these  changes  the  chief  element  in  the  tax  system  has, 
in  its  fundamental  character,  remained  unaltered,  save  that  by  stat- 
utory definition  credits  of  various  sorts  are  not  property  for  pur- 
poses of  taxation.  The  constitutional  provision  which  replaced  that  of 
the  organic  act  is  somewhat  more  elaborate  and  rigid  in  form,  the 
right  of  exemption  being  narrowly  limited,  but  it  is  otherwise  sub- 
stantially the  same.  The  one  amendment  that  has  been  passed  permits 
the  exemption  of  personal  property  to  an  amount  not  exceeding  $300 
for  each  head  of  a  family.  The  law  has  been  made  more  precise  by 
statutes  and  by  judicial  decisions,  and  administrative  methods  have 
been  considerably  developed ;  but  with  the  important  exception  of 
the  treatment  of  credits,  it  is  still  the  general  property  tax  that  is  so 
widely  condemned  by  the  recognized  authorities. 

To  some  it  will  doubtless  appear  that  this  condemnation  is  un- 
warranted. Granting  that  different  principles  may  properly  be 
adopted  under  different  types  of  civilization,  there  is  no  sufficient 
reason  why  a  principle,  fundamentally  sound,  should  be  abandoned 
because  the  social  organization  has  become  large  and  complex.  All 
that  is  needed  is  that  the  application  of  the  principle  be  made  effective. 
This  may  require  more  highly  developed  administrative  machinery 
than  has  yet  been  used;  but  it  does  not  justify  a  modification  of  the 
principle. 

What  is  overlooked  is  the  fact  that  the  taxation  of  all  property 
at  a  uniform  rate  is  not  so  much  a  principle  as  a  method.  The  fund- 
amental principle  is  that  each  person  sharing  in  the  benefits  conferred 
by  the  community  should  pay  taxes  according  to  his  ability.  It  must 
be  remembered  that  it  is  not  property  that  has  obligations  and  pays 
taxes,  but  men  and  women.  Other  things  being  equal,  it  is  upon  its 
success  or  failure  in  imposing  taxes  according  to  ability  that  the 
general  property  tax  must  stand  or  fall.  If  the  object  sought  can  be 
more  readily  attained  by  a  modification  of  the  general  property  tax, 
the  modification  should  be  made.  If  without  introducing  evils  greater 
than  those  for  which  a  remedy  is  sought  an  entirely  different  system 
would  be  more  effective,  the  general  property  tax  should  give  way  to 
it.    Even  if  the  former  could  be  well  enforced,  the  question  would  still 


THE  GENERAL  PROPERTY  TAX  25 

remain  as  to  whctlu-r  property,  without  regard  to  its  form,  is  a  sat- 
isfactory test  of  ability.  It  is  the  principle  that  is  of  vital  im- 
portance, not  the  method. 

We  have  then  to  consider  the  general  property  tax  in  its  actual 
working  in  the  State  of  Washington  today.  It  is  not  enough  to 
know  that  it  is  condemned  bj'  tax  commissions  and  by  professional 
students  of  economics.  If  the  people  are  to  deal  intelligently  with  the 
subject  of  tax  reform  they  must  know  what  the  present  system  is  and 
where  lie  its  merits  and  defects.  It  should  be  said,  moreover,  that 
the  almost  unanimous  condemnation  that  is  heaped  upon  it  is  not  a 
condemnation  of  the  taxation  of  property,  but  of  the  attempt  to  tax 
all  kinds  of  property  and  that  at  a  uniform  rate.  Many  of  its  se- 
verest critics  would  retain  a  considerable  part  of  it,  but  would  tax 
certain  kinds  of  property  at  special  rates,  and  would  deal  with  other 
kinds  by  entirely  different  methods.  It  is  not  their  object  to  give 
favors  to  any  class  of  taxpayers,  but  to  establish  a  system  which  will, 
in  fact,  require  each  to  pay  according  to  his  ability. 

§4.  The  State  Constitution  provides  that  all  property  in  the 
State,  not  exempt  under  its  provisions  or  by  the  laws  of  the  United 
States,  shall  be  taxed  at  a  uniform  and  equal  rate  according  to  its  value. ^ 
This  at  once  raises  the  question  of  what  property  is.  In  regard  to 
land  and  other  material  goods  there  can  be  no  question:  so  long  as 
anyone  has  a  just  claim  to  their  possession  they  are  property.  In 
addition  there  are  certain  legal  rights  that  are  included  under  the 
term.  "Royalties  and  patent  rights"  is  one  item  in  the  list  of  taxa- 
ble personalty.  "Leaseholds"  is  another.  The  franchises  of  public 
service  corporations  have  been  held  to  be  property.  The  "good  will" 
of  a  business,  however,  is  not  ordinarily  so  regarded,  although  it  re- 
ceives legal  protection,  may  be  bought  and  sold,  and  is  sometimes  very 
valuable.*"' 

There  is  probably  nothing  ordinarily  subject  to  taxation  that  has 
been  a  source  of  more  difficulty  in  the  administration  of  the  general 
property  tax  than  what  are  commonly  called  intangibles.  Under  this 
head  are  to  be  included  stocks,  bonds,  mortgages,  bank  deposits,  and. 
in  fact,  practically  all  forms  of  credit.  For  a  long  time  the  attempt 
was  made  in  Washington,  as  in  other  states  where  the  unmodified 
general  property  tax  exists,  to  tax  these  as  material  forms  of  prop- 
erty are  supposed  to  be  taxed ;  and,  as  in  other  states,  the  result  was 

'Article  VII,   Sections   1   and   2. 

•For  a  discussion  of  this  point  see  below,  pp.   68   and  83. 


26  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

distinct  failure/  In  1907  the  legislature  inserted  in  the  law  the 
clause:  "Provided,  That  mortgages,  notes,  accounts,  moneys,  certif- 
icates of  deposit,  tax  certificates,  judgments,  state,  county,  municipal 
and  school  district  bonds  and  warrants  shall  not  be  considered  as  prop- 
erty for  the  purpose  of  this  chapter,  and  no  deduction  shall  hereafter 
be  allowed  on  account  of  indebtedness  owed."  The  effect  of  this  pro- 
viso is  to  exempt  credits  of  practically  all  kinds,  including  corpora- 
tion securities. 

It  does  not  follow  that  the  legislature  is  free  to  define  property  in 
an  arbitrary  manner.  In  passing  on  the  constitutionality  of  the  ex- 
emption the  Supreme  Court  held  that  money  is  clearly  property  and, 
as  such,  must  be  taxed.  Credits,  too,  are  property  in  a  sense,  but 
they  have  a  representative  character.  Taking  a  loan  as  an  example,  the 
Court   remarked^ : 

"The  credit  in  the  hands  of  B  is  a  matter  of  no  value  of  conse- 
quence except  for  the  prospect  or  faith  that  A  will  in  the  future  de- 
liver to  B  $5,000  in  actual  money  or  other  property.  That  money  or 
property  that  may  in  the  future  come  to  B  is  still  in  the  hands  of  A  or 
someone  else  from  whom  A  will  procure  it;  and  meanwhile  it  is  taxed 
at  some  place,  wherever  it  may  be,  no  matter  who  possesses  it  or  con- 
trols it,  whether  within  or  without  this  state." 

In  upholding  the  constitutionality  of  the  exemption,  except  as 
regards  money,  the  Court  laid  much  emphasis  on  the  fact  that  the 
taxation  of  intangibles  results  in  double  taxation.     Even  if  this  is  not 

'In  1906,  the  last  year  in  which  a  general  attempt  was  made  to  reach 
property  of  this  sort,   the  total  amounts  assessed  were  as  follows: 

Money  and   credits   of  banks,   bankers,   brokers,   etc $   4,857,482. 

Moneys  on  hand   or  on   deposit    3,151,452 

Notes,  accounts,  tax  certificates,  warrants  and  other  credits 3,016,960 

Bonds,   stocks   and   shares    709,030 

Total    intangibles    $11,734,924 

Total    personal    property    $   82,151,507 

Total   property,   real   and   personal 530,209,882 

In  commenting  on  the  exemption  of  intangibles  the  State  Board  of  Tax 
Commissioners  remarked:  "The  value  of  intangible  personal  property  in 
the  State  probably  exceeds  by  several  million  dollars  the  total  value  of 
all  property  now  on  the  tax  rolls.  *  *  ♦."  ("Second  Biennial  Report,  p. 
47.")  This  is  possibly  an  overestimate;  but  even  if  the  amount  of  in- 
tangible were  equal  only  to  the  amount  of  tangible  personality,  it  is  ob- 
vious that  but  a  small  percentage  of  it  was  reached;  and  a  very  large  pro- 
portion of  that  was  in  the  hands  of  "banks,  bankers,  brokers,  etc."  The 
property  of  domestic  corporations,  other  than  banks,  was  by  law  assessed 
to  the  corporation  itself,  and  the  stock  was  not  assessable  to  the  stock- 
holder (Ridpath  v.  Spokane  Co.,  23  Wash.  436).  Even  allowing  for  this, 
the  item  of  $709,030  for  "bonds,  stocks,  and  shares"  seems  ridiculous. 

"State  ex  rel.  Wolfe  v.  Parmenter,  50  Wash.  164.  This  decision  contains 
a  very  good  discussion  of  the  principles  underlying  the  exemption.  The 
dissenting  opinion  of  Justice  Fullerton  contains  a  good  discussion  of  the 
opposing  view.  It  is  interesting  to  notice  that  Justice  Fullerton  took  the 
case  of  stocks  and  bonds  of  a  railroad  whose  tangible  property  lay  with- 
out the  State,  as  an  example  of  what  he  regarded  as  the  unfortunate  effect 
of  the  decision. 


THE  GENERAL  PROPERTY  TAX  27 

forbidden  the  law  should  not  be  interpreted  so  as  to  require  it.  The 
constitution  makes  it  just  as  imperative  that  the  taxation  of  property 
shall  be  uniform  as  it  does  that  all  property  shall  be  taxed,  and  the 
Court  remarked  that  it  was  a  matter  of  common  knowledge  that  the 
attempt  to  tax  credits  was  one  of  the  most  fruitful  sources  of  inequality 
in  taxation,  and  the  legislature  doubtless  had  this  in  mind  when  it 
passed  the  law. 

There  was  one  other  case  in  which  the  attempt  was  made  to  grant 
relief  from  taxation  by  definition.  The  statute  provided  that  ships 
and  vessels  registered  at  any  custom  house  within  the  state,  but  en- 
gaged exclusively  in  interstate  or  international  trade  were  not  to  be 
listed  for  taxation,  "such  vessels  not  being  deemed  property  within 
the  state."  In  a  very  recent  decision  this  statute  has  been  declared 
unconstitutional,  it  being  held  that  the  situs  of  the  vessel  was  actually 
within  the  state. ° 

§5.  As  cases  of  this  sort  show,  the  right  of  the  legislature  to 
make  exemptions  is  narrowly  limited.  The  following  are  the  clauses 
of  the  Constitution  dealing  with  the  subject^": 

"Provided,  That  a  deduction  of  debts  from  credits  may  be  au- 
thorized: Provided  further,  That  the  property  of  the  United  States 
and  of  the  State,  counties,  school  districts  and  other  municipal  corpora- 
tions, and  such  other  property  as  the  Legislature  may  by  general  laws 
provide,  shall  be  exempt  from  taxation;  and  provided  further,  That 
the  Legislature  shall  have  power,  by  appropriate  legislation,  to  exempt 
personal  property  to  the  amount  of  $300  for  each  head  of  a  family 
liable  to  assessment  and  taxation  under  the  provision  of  the  laws  of 
this  State  of  which  the  individual  is  the  actual  bonu  fide  owner." 

It  will  be  noticed  that  public  property — federal,  state,  and  local — 
is  alone  specifically  exempt.  Quite  apart  from  its  own  constitution  a 
state  has  no  power,  without  the  consent  of  Congress,  to  tax  federal 
property  or  the  lands  of  Indians  living  in  tribal  relations.  Even  for 
the  taxation  of  national  banks  such  consent  is  necessary ;  but  this, 
subject  to  some  restrictions,  has  been  given.  The  exemption  of  the 
property  of  the  state  and  its  subdivisions  means  simply  that  one 
branch  of  the  government  shall  not  have  power  to  tax  another  branch. 
In  some  cases  this  would  be  of  considerable  importance.  Thurston 
County,  for  example,  might  draw  revenue  from  the  rest  of  the  State 
by  reason  of  the  fact  that  Olympia  is  the  capital.  On  the  other  hand, 
cities  already  heavily  burdened  would  be  required  to  pay  taxes  to  the 

•Pacific  Cold  Storage  Company  v.  Pierce  County,  85  Wash.  626. 
"From  Article  VII,  Section  2. 


28  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

state.     The  principle,  however,  that  governmental  agencies  shall  not 
be  subject  to  taxation  is  well  established  in  this  country- 

§6.  Besides  the  property  which  the  Constitution  definitely  or- 
dains shall  be  exempt  there  are  a  few  cases  in  which  discretion  is 
given  to  the  legislature.  Specifically  mentioned  are  the  deduction 
of  debts  from  credits  and  the  exemption  of  $300  worth  of  personal 
property  for  each  head  of  a  family.  Since  credits  are  no  longer 
property  for  the  purpose  of  taxation,  the  statute  permitting  the  de- 
duction of  debts  from  credits  has  lost  all  meaning  and  has  been  re- 
pealed. Provision  has  been  made,  however,  for  the  exemption  of  $300 
worth  of  personal  property  for  each  head  of  a  family  and  for  widows ; 
and  this  gives  the  tax  a  certain  progressive  character  which  is  not 
of  much  consequence  unless  the  amount  of  property  held  is  small. 
Those  who  favor  a  tax  on  bachelors,  however,  should  notice  that  the 
effect  of  the  exemption  is  to  place  on  single  persons  a  property  tax 
of  limited  amount,  which  is  not  laid  on  other  members  of  the  com- 
munity. This  tax,  if  the  rate  were  forty  mills,  would  be  limited 
to  $12  a  year.  There  would,  indeed,  be  a  few  cases  in  which  the  tax 
would  fall  on  married  persons,  such,  for  example,  as  a  wife  who  was 
taxed  separately  from  her  husband. 

In  the  second  exemption  clause  quoted  above  appear  the  words: 
"  *  *  *  *  and  such  other  property  as  the  legislature  may  by  gen- 
eral laws  provide,  shall  be  exempt  from  taxation."  If  these  words  be 
taken  from  their  context  they  seem  to  give  the  legislature  a  free 
hand.  As  a  matter  of  fact  they  are  a  part  of  the  clause  exempting 
public  property.  It  has  been  held,^^  in  accordance  with  a  well  un- 
derstood principle  of  legal  interpretation,  that  they  refer  to  property 
of  the  same  general  kind:  that  is,  to  public  property,  or  to  property 
which,  while  privately  owned  partakes  of  a  public  nature,  such  as  that 
of  educational,  religious,  and  charitable  institutions.  It  was  because 
of  this  decision  that  a  constitutional  amendment  was  necessary  to 
permit  the  exemption  of  $300  worth  of  personal  property  for  each 
head  of  a  family. 

A  number  of  exemptions  have  been  granted  which  seem  to  be  in 
harmony  with  the  decision.  The  list  is  quite  long.  It  includes:  pub- 
lic burial  grounds  and  cemeteries ;  churches  built  and  supported  by 
donations  whose  seats  are  free  to  all;  non-sectarian  religious  societies, 

"State  ex  rel.  Chamberlain  v.  Daniel,  Assessor,  17  Wash.  111.  This  de- 
cision was  the  result  of  an  attempt  on  the  part  of  the  legislature  to  allow 
an  exemption  of  $.500  personality  and  a  like  amount  for  improvements  en 
land. 


THE  GENERAL  PROPERTY  TAX  29 

organized  chiefly  for  religious  purposes  and  not  for  profit,  together 
with  their  properties  used  for  educational,  benevolent,  and  social  pro- 
tective purposes  arising  out  of  their  religious  work,  where  these  are 
for  the  public  good;  hospitals,  orphanages,  institutions  for  the  ref- 
ormation of  fallen  women,  and  homes  for  the  aged  and  infirm,  sup- 
ported in  whole  or  in  part  by  public  or  private  gifts;  humane  societies 
to  an  amount  not  exceeding  $10,000;  free  public  libraries;  art,  scien- 
tific, or  historical  collections,  where  they  are  maintained  and  exhibited 
for  the  benefit  of  the  general  public  and  not  for  profit ;  schools  and 
colleges  supported  in  whole  or  in  part  by  gifts,  endowments,  or  char- 
ity, the  annual  income  of  which  from  endowments  is  at  least  equal  to 
that  from  tuition  fees ;  fire  engines,  etc.,  and  the  buildings  of  fire 
companies  when  owned  by  them;  and  certain  fraternal  societies  on 
property  other  than  real  estate  and  office  furniture.  Nearly  all  of 
these  exemptions  are  subject  to  limitations  and  to  provisions  de- 
signed to  prevent  abuses.  The  amount  of  land  that  shall  be  exempt 
is,  in  many  cases,  limited.  Usually  the  property  must  be  used  ex- 
clusively for  the  purposes  of  the  particular  organization  on  account  of 
which  it  is  exempt.  In  some  cases  the  State  reserves  the  right  of 
inspection  or  even  the  right  to  a  place  on  the  board  of  trustees,  ex  of- 
ficio, for  certain  public  oflScials. 

§7.  In  a  few  cases  provision  has  been  made  for  exemption  by 
statutes  which  would  seem  to  be  unconstitutional.  For  a  long 
time  all  fruit  trees,  except  nursery  stock  and  forest  trees  arti- 
ficially grown,  were  declared  to  be  exempt.  As  a  matter  of  fact,  the 
assessors  seem  to  have  paid  little  attention  to  this  provision  except  to 
urge  that  it  be  repealed.  Fruit  trees  were  not,  indeed,  taxed  as  trees, 
but  as  a  part  of  the  land  on  which  they  grew.  As  one  assessor  put  it, 
"an  acre  of  land  with  a  full  bearing  apple  orchard  is  worth  on  the 
market,  say  $800  to  $1,500  per  acre  according  to  location,  water  right, 
distance  from  transportation  and  other  causes."^"  This  method  of 
assessment  had  the  approval  of  the  State  Board  of  Tax  Commis- 
sioners, which  regarded  the  exemption  as  unconstitutional.  In  1912 
the  county  assessors,  in  their  annual  convention,  adopted  a  resolution, 
the  language  of  which  is  significant,  at  least  as  showing  the  opinion 
of  the  committee  by  which  it  was  framed,  "that  that  section  of  the 
law  purporting  to  exempt   fruit  trees   from   assessment  and  taxation 

'^B.  F.  McCurdy,  "The  Basis  and  Equalization  of  Assessments."  Pro- 
ceedings of  the  Fourteenth  Annual  Convention  of  County  Assessors  (1912'), 
p.  28.  Hereafter  these  pubhcations  will  he  referred  to  simply  as  "County 
Assessors,"   preceded   by   the   appropriate  number. 


30  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

should  be  repealed."^"     The  exemption  was  removed  from  the  statute 
in  1915. 

There  still  stands  an  act  providing  for  the  exemption  of  "all 
ships,  vessels,  and  boats  in  actual  construction  and  all  materials  espe- 
cially designed  and  set  apart  for  them,"  However  desirable  this 
measure  of  protection  to  a  state  industry  may  be,  it  is  hard  to  see  how 
it  could  stand  the  test  of  constitutionality  if  the  question  were  raised. 
In  practice  the  assessors  seem  to  allow  the  exemption;  and  the  matter 
has  not  been  brought  before  the  courts. 

§8.  The  amount  of  revenue  secured  by  the  general  property  tax 
and,  in  so  far,  the  weight  of  the  burden  upon  the  taxpayer,  depends 
chiefly  on  the  amount  of  public  expenditures.  It  is,  of  course,  true 
that  there  are  other  taxes  by  which  revenue  is  secured,  but  the  rate 
at  which  they  are  imposed  is  definitely  fixed  for  considerable  periods 
of  time,  and  is  not  ordinarily  varied  to  meet  the  fluctuating  needs  of 
the  government.  The  general  property  tax  is  the  elastic  element  in 
the  revenue  system;  and  it  is  consequently  the  tax  the  rate  of  which 
is   directly   connected   with   appropriations. 

One  way  in  which  the  attempt  is  made  to  keep  down  the  rate  is 
by  the  use  of  statutory  limitations.  Various  "funds"  which  can 
be  used  only  for  specified  purposes  are  established  in  the  treasury, 
and,  with  a  few  exceptions,  the  rate  that  may  be  imposed  for  each 
is  limited  to  a  certain  number  of  mills.  In  the  case  of  counties,  cities, 
etc.,  such  maxima,  being  fixed  by  the  State,  are  legally  binding.  In  the 
case  of  the  State  itself,  however,  the  legislature  that  imposes  a  tax 
may  raise  the  limit  or  may  establish  new  funds.  Any  limits  it  may 
fix  are,  of  course,  binding  on  the  administrative  officials.  As  regards 
the  Legislature  the  chief  effect  of  the  rate  limitations  is  to  give  spe- 
cial cause  for  consideration  of  the  total  rate  that  appropriations  may 
make  necessary. 

The  existence  of  some  of  these  funds  is  required  by  the  Con- 
stitution and  even  by  the  "enabling  act"  under  which  statehood  was 
conferred.  In  some  cases  the  chief  reason  for  the  funds  seems  to  be 
that  there  are  certain  revenues  that  can  be  used  only  for  certain  pur- 
poses. For  example,  the  enabling  act  provides  that  five  per  cent  of 
the  receipts  from  public  lands  sold  by  the  United  States,  less  ex- 
penses, shall  be  paid  to  the  State,  "to  be  used  as  a  permanent  fund, 
the  interest  of  which  only  shall  be  expended  for  the  support  of  com- 
mon schools."  In  some  cases  a  motive  for  the  creation  of  certain 
"14County  Assessors,   p.    13.      Italics   are    the   author's. 


THE  GENERAL  PROPERTY  TAX  31 

special  funds  is  to  give  expression  to  a  permanent  financial  policy  in 
regard  to  the  amount  of  taxes  that  shall  be  levied  for  certain  purposes. 
Such,  for  example,  are  the  State  University  fund  and  the  funds  for 
the  other  institutions  of  higher  education.  Another  reason,  doubtless, 
is  need  of  the  State  for  increased  revenues  in  the  face  of  the  stat- 
utory limit  of  three  mills  for  general  state  purposes.  It  would,  of 
course,  be  legally  possible  to  raise  this  limit;  but  this  would  appear 
to  many  to  open  the  way  to  increased  extravagance,  though  they  may 
be  willing  to  be  taxed  for  the  purposes  represented  by  the  special 
funds.  It  should  be  noticed  that  the  total  state  tax  very  considerably 
exceeds  the  limit  on  taxes  for  general  purposes. 

§9.  Except  as  regards  certain  special  funds  for  which  definite 
rates  of  taxation  are  provided,  the  general  property  tax  is  as  an  ap- 
I^ortioned  tax.  The  legislature  determines  the  amount  of  money  to  be 
raised,  but  does  not  directly  fix  the  rate.  That  cannot  be  done  until 
the  total  value  of  taxable  property  has  been  ascertained.  As  it  is  in 
the  assessment  and  equalization  of  the  tax  that  the  fundamental  prac- 
tical defects  are  to  be  found,  we  shall  examine  these  phases  of 
the  subject  later  in  some  detail.  Here  it  is  sufiicient  to  note  that  it 
is  not  until  equalization  has  been  completed  that  the  rate  can  be  de- 
termined. 

The  county  boards  of  equalization  begin  their  sessions  on  the 
first  INIonday  in  August,  and  the  state  board  on  the  first  Monday  in 
September.  The  county  boards  meet  again  in  November  and  April, 
but  only  for  the  correction  of  certain  kinds  of  errors,  not  for  equaliza- 
tion purposes.  After  the  state  board  has  completed  its  work  of  equal- 
ization it  apportions  the  amounts  to  be  raised  by  the  various  counties 
for  state  purposes,  including  those  for  which  permanent  provision 
has  been  made,  such  as  interest  and  sinking  fund  requirements,  on  the 
basis  of  the  valuation  as  equalized  by  itself.  Within  ten  days  after  its 
adjournment,  the  state  auditor,  who  is  ex  officio  its  president,  sends 
to  each  county  assessor  a  transcript  of  its  proceedings,  specifying  the 
amount — not  the  rate — to  be  levied  in  his  county  for  state  purposes. 

§10.  The  assessor,  having  now  all  the  necessary  data  in  his 
possession,  proceeds  to  calculate  the  rate  of  the  tax  on  the  assessed 
value  as  fixed  by  the  county  board  of  equalization.  Since  the  amount 
of  the  state  tax  apportioned  to  each  county  is  based  on  the  state 
equalization,  the  burden  of  the  tax  on  the  different  counties  is  as 
nearly  uniform  as  possible ;  but  since  the  rate  is  calculated  on  the 
basis   of  the   county   equalization,  which   is   rarely  the  same   for   any 


32  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

two  counties,  the  rate  of  the  state  tax  varies  from  county  to  county, 
being  high  where  property  has  been  assessed  at  a  low  valuation  and 
low  where  a  high  valuation  has  been  made. 

To  the  rate  for  state  purposes  must  be  added  the  rates  for  coun- 
ty, municipal,  school  district,  road  district,  and  other  local  purposes. 
The  amounts  of  these  taxes,  or  in  some  cases  the  rates,  are  certified 
to  the  assessor  by  the  proper  officials,  not  later  than  the  tenth  of 
October,  in  much  the  same  way  as  the  amounts  for  state  purposes  are 
certified  by  the  state  auditor.  The  assessor  then  proceeds  to  the 
"extension"  of  the  tax,  which  means  simply  the  entering  in  the  as- 
sessment books,  opposite  each  description  of  real  property,  or,  in  the 
case  of  personalty,  opposite  the  name  of  the  taxpayer,  the  amount 
of  taxes  levied. 

The  extension  of  taxes  being  completed,  the  assessor  makes  out 
and  sends  to  the  state  auditor  an  abstract  of  the  rolls,  showing  the 
number  of  acres  of  land  assessed  and  their  value,  including  that  of 
structures ;  the  value  of  the  taxable  personalty ;  the  totals ;  the  totals 
as  equalized;  and  the  amount  of  taxes  for  all  purposes  for  that  year. 
Not  later  than  the  fifteenth  of  December,  he  turns  the  books  over 
to  the  county  auditor,  entering  in  each  his  certificate  that  the  list  is 
correct.  The  auditor  attaches  his  warrant  authorizing  the  collection 
of  taxes  and  on  the  first  Monday  in  January  sends  the  books  to  the 
county  treasurer,  charging  the  amount  of  taxes  against  him.  The 
journey  of  the  assessment  books  is  now  ended;  and  after  they  have 
been  used  by  the  treasurer  they  are  preserved  as  public  records  in 
his  office. 

§11.  The  collection  of  all  taxes,  whether  state  or  local,  is  in 
the  hands  of  the  county  treasurer.  The  methods  of  collecting  taxes 
on  real  and  personal  property  differ  in  some  respects ;  but  as  regards 
both  much  more  consideration  is  given  to  the  convenience  of  the  tax- 
payer than  is  the  case  in  some  other  parts  of  the  country.  The  fact 
that  there  is  an  advantage  in  having  but  one  collector  of  taxes  does 
not  seem  to  be  everywhere  realized,  though  it  would  seem  to  make 
for  economy  as  well  as  for  convenience.  The  taxpayer  receives  but 
one  bill  for  his  real  and  one  for  his  personal  property  in  the  county. 
He  does  not  have  to  appear  in  person  at  the  treasurer's  office,  but  may 
make  payment  by  mail ;  and  cheques  drawn  on  banks  within  the  county 
are  commonly  accepted. 

Upon  receiving  the  assessment  books  from  the  auditor  the  treas- 
urer makes  the  proper  entries  in  his  own  books,  adding  to  the  current 


THE  GENERAL  PROPERTY  TAX  33 

levy  the  amounts  of  any  taxes  that  may  be  delinquent.  As  regards 
real  property  notice  is  given  by  publication,  once  in  each  of  three 
consecutive  weeks,  that  the  books  have  been  turned  over  to  him  for  the 
collection  of  taxes.  Notice  of  taxes  on  personal  property  must  be 
sent  by  mail  to  each  person  assessed ;  and,  upon  request,  the  treasurer 
is  required  to  notify  the  taxpayer  of  the  total  amount  of  taxes  on 
real  property  due  from  him,  with  a  statement  of  the  name  of  each 
tax  and  the  rate  of  levy  made  upon  it.  In  practice,  in  some  counties 
at  least,  simple  bills  for  taxes  upon  real  and  upon  personal  property 
are  sent  to  each  taxpayer.  The  collection  of  taxes  begins  on  the  first 
Monday  in  February,  and  the  treasurer  is  not  permitted  to  accept  any 
payment  before  that  date,  except  in  the  case  of  property  about  to  be 
removed  from  the  county  and  in  the  case  of  "itinerant  merchants." 

§12.  Taxes  on  personal  property  do  not  become  delinquent 
until  March  fifteenth.  If  they  are  not  paid  by  that  time  the  treas- 
urer is  required  to  make  a  special  effort  to  collect  them,  and  failing 
in  that,  to  notify  the  sheriff,  whose  duty  it  is  to  distrain  sufficient 
property  to  pay  the  taxes,  together  with  all  costs  ai.d  interest  at 
fifteen  per  cent  per  annum,  posting  notice  of  sale  not  less  than  ten, 
or  in  the  case  of  standing  timber,^*  fish  trap  locations  and  certain 
kinds  of  fish  net  locations  not  less  than  thirty  days  later.  If  payment 
is  not  made  within  that  time  the  property,  or  as  much  of  it  as  may 
be  necessary,  is  sold  at  public  auction.  If  any  surplus  remains  from 
the  price  received  it  is  paid  to  the  former  owner  of  the  property. 
Personal  property  taxes  constitute  a  lien  against  all  real  and  per- 
sonal property  of  the  assessed. 

The  treasurer  is  personally  responsible  for  wilful  refusal  or  neg- 
lect to  collect  the  taxes  on  personal  property ;  and  the  law  requires  the 
deduction  of  the  amount  from  his  salary.  If,  however,  he  is  unable 
to  collect,  by  distress  or  otherwise,  he  files  with  the  county  auditor,  on 
the  first  of  January,  a  list  of  the  taxes,  with  an  affidavit  made  by 
himself  or  the  deputy  to  whom  the  matter  has  been  entrusted,  to 
the  effect  that  he  has  made  diligent  enquiry  and  search  for  goods 
and  chattels  on  which  to  levy,  but  has  been  unable  to  collect. 

An  interesting  case  of  distraint  arose  in  Seattle  in  1910  when  the 
treasurer  of  King  County,  after  failing  to  collect  from  the  Seattle 
Electric  Company  delinquent  taxes  amounting  to  about  $167,000,  pro- 
ceeded  to  distrain   a   hundred   and   twenty-five   street  cars   and   some 

"Standing  timber,  when  owned  separately  from  the  land,  is  personality. 


34  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

trackage,  and  for  a  time  a  tie-up  of  the  system  was  threatened.^^ 
The  delay  in  the  payment  of  the  tax  arose  out  of  a  disagreement  as 
to  the  taxable  value  of  the  franchise,  the  company  saying  that  it 
had  no  desire  to  refuse  payment  of  the  amounts  justly  due  from  it. 
The  company  promptly  tendered  payment  of  the  taxes  and  costs, 
without  interest;  and  this  was  accepted.  As  the  interest  would  have 
amounted  to  $30,000  the  treasurer  was  subjected  to  some  criticism; 
but  his  position  was  upheld  in  opinions  given  by  the  prosecuting  at- 
torney of  the  county  and  the  attorney  general  of  the  State.  Owing 
to  a  defect  in  the  law,  the  interest  could  not  be  collected  unless  the 
case  was  actually  carried  on  to  a  sale.  The  defect  in  the  law  has 
since  been  corrected. 

While  ordinarily  notice  of  the  amount  of  personal  property  taxes 
due  must  be  given,  they  may  be  collected  without  notice  if,  after 
they  have  been  levied,  the  treasurer  learns  that  the  property  in 
question  is  about  to  be  removed  from  the  county.  If,  at  any  time 
after  assessment,  but  before  the  levy,  either  the  assessor  or  the  treas- 
urer learns  that  property  is  about  to  be  dissipated  or  removed  from 
the  state  the  law  requires  the  adoption  of  a  similar  policy,  the  rate  in 
this  case  being  computed  on  the  basis  of  the  levies  for  the  preceding 
year.  If,  however,  the  property  is  merely  removed  to  another  coun- 
ty after  assessment,  but  before  the  levy,  the  treasurer  of  that  county 
is  notified,  and  it  is  his  duty  to  collect  the  tax  and  turn  the  proceeds 
over  to  the  treasurer  of  the  county  in  which  it  was  assessed,  deducting 
the  cost  of  collection.  Delinquent  taxes  and  penalties  are  treated  in 
the  same  way.  While  provisions  of  this  sort  for  dealing  with  prop- 
ery  that  is  about  to  pass  from  the  jurisdiction  of  the  county  may  be 
of  some  use  in  conspicuous  cases,  it  is  difficult  to  see  how  they  can 
be  given  a  general  application  in  a  country  in  which  there  is  as  little 
supervision  of  the  comings  and  goings  of  the  individual  as  in  this. 

There  is  one  other  case  in  which  taxes  may  collected  earlier 
than  at  the  regular  time.  This  is  the  case  of  "itinerant  merchants," 
or  persons,  firms,  or  corporations  who  bring  goods  into  the  State  after 
the  date  of  assessment,  and  open  a  temporary  place  of  business  in 
which  to  sell  them,  without  the  intention  of  being  permanently  en- 
gaged in  trade.  Such  persons  are  required  to  notify  the  assessor,  who 
then  determines  the  value  of  the  goods,  and  taxes  are  collected  at 
the  rate  for  the  current  year.  Failure  to  notify  the  assessor  renders 
the  owner  liable  to  a  penalty  of  double  the  amount  of  the  tax. 

"For  details  see  Seattle  daily  papers  for  May,   1910. 


THE  GENERAL  PROPERTY  TAX  35 

§13.  As  has  already  been  stated,  the  methods  of  collecting  taxes 
on  realty  differ  somewhat  from  those  used  in  the  case  of  personalty. 
In  both  cases,  however,  collection  begins  on  the  first  Monday  in 
February.  Taxes  on  real  estate,  however,  do  not  become  delinquent 
until  the  thirty-first  of  May;  and  when  the  total  amount  owed  by 
one  person  is  as  much  as  $2  he  need  pay  only  one  half  of  it  at  that 
time,  postponing  payment  of  the  remainder  until  the  thirtieth  of  No- 
vember. If  payment  is  not  then  completed  the  unpaid  half  becomes 
delinquent  and  interest,  at  the  rate  of  fifteen  per  cent  per  annum,  is 
charged  from  June  first.  On  the  other  hand,  if  the  full  amount  owed 
by  one  person  is  paid  at  one  time  on  or  before  the  fifteen  of  March 
a  rebate  of  three  per  cent  is  allowed. 

Taxes,  including,  if  delinquent,  interest  and  costs,  constitute  a 
lien  against  the  property  on  which  they  are  imposed  prior  to  other 
forms  of  obligation.  They  do  not,  however,  constitute  a  personal 
lien  against  the  owner.  Arrangements  have  been  made  to  permit 
the  payment  of  taxes  by  anyone  who  has  a  legitimate  interest  in  the 
property,  with  the  right  to  recover  the  amount  of  the  payment  from 
the  owner. 

After  taxes  have  been  delinquent  for  one  year  the  treasurer  sells 
to  anyone  applying,  a  certificate  of  delinquency,  the  purchaser  pay- 
ing the  amount  of  the  tax,  and  being  entitled  to  interest  at  fifteen  per 
cent.  For  this  certificate  a  fee  of  fifty  cents  is  charged.  At  any 
time  previous  to  the  issuance  of  a  tax  deed  the  property  may  be 
redeemed,  and  all  claims  against  it  released,  by  the  payment  to  the 
county  treasurer,  for  the  benefit  of  the  holder  of  the  certificate,  of 
the  amount  for  which  it  was  sold,  with  interest,  and  the  amount  of 
penalties,  interest,  and  costs  paid  by  the  holder  of  the  certificate,  and 
interest  upon  such  payments.  No  fee,  however,  is  charged  for  redemp- 
tion. 

After  three  years  from  the  date  of  the  original  delinquency,  if 
the  property  has  not  been  redeemed,  the  holder  of  the  certificate 
may  serve  notice  upon  the  owner,  by  publication  if  necessary,  sum- 
moning him  to  appear  and  defend  an  action  for  foreclosure,  or  pay  the 
amount  due.  A  copy  of  this  notice  must  be  filed  with  the  county 
treasurer;  and  if  anyone  interested  in  the  property  seeks  to  redeem 
it  the  costs  of  foreclosure,  as  ascertained  by  the  treasurer,  are  added 
to  the  price  of  redemption. 

Before  applying  for  judgment  the  holder  of  the  certificates 
must  see  to  it  that  all  taxes  accrued  on  the  property  to  date  have 


36  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

been  paid.  If  he  fails  in  this  a  second  certificate  may  be  issued,  and 
the  holder  of  the  first  forfeits  all  his  rights  to  the  holder  of  the  sec- 
ond, receiving  from  him,  however,  the  price  of  the  first  with  interest. 
These  provisions,  however,  do  not  apply  where  the  holder  is  a  county 
or  a  municipality,  since  such  holders  are  not  obliged  to  pay  back  taxes 
until  the  property  is  sold,  and  then  the  proceeds  of  the  sale  must  be 
justly  apportioned  among  the  different  taxing  districts. 

The  law  provides  for  the  placing  upon  the  county  of  most  of 
the  expenses  incident  to  foreclosure  by  the  holder  of  a  certificate. 
The  county  itself,  upon  request,  prosecutes  the  action  to  final  judg- 
ment, the  holder  paying  a  court  fee  of  $2.  If  he  so  desires,  he  is  at 
liberty  to  employ  counsel  of  his  own  to  work  either  with  the  pros- 
ecuting attorney  or  independently.  The  prosecuting  attorney,  how- 
ever,  is   not   permitted   to   collect  any   fee   for  his   services. 

A  full  discussion  of  the  legal  aspects  of  foreclosure  would  re- 
quire a  volume  in  itself,  and  would  be  out  of  place  in  a  work  of 
this  kind.  One  or  two  points,  however,  may  be  noticed.  When  the 
property  is  sold  for  taxes  only  as  much  as  is  necessary  to  raise  the 
required  amount  is  sold.  The  property  may  be  redeemed  at  any  time 
before  the  deed  is  executed;  and  in  the  case  of  minor  heirs  or  insane 
persons  it  may  be  redeemed  at  any  time  within  one  year  from  the 
removal  of  the  disability  upon  payment  of  interest  on  the  purchase 
price  at  fifteen  per  cent  per  annum,  and  a  reasonable  compensation  for 
improvements  made  in  good  faith,  less  the  value  of  use.  If  the  land 
has  been  sold  for  taxes  to  which  it  was  not  properly  subject  or  taxes 
which  have  been  paid,  the  treasurer  is  required  to  make  entry  on  the 
sale  or  redemption  record  that  the  land  was  erroneously  sold,  and 
this  entry  is  prima  facie  evidence  of  the  fact.  From  these  cases 
alone  it  will  be  seen  why  a  tax  deed  is  commonly  regarded  by  a  pur- 
chaser as  not  entirely  satisfactory. 

At  the  end  of  five  years  from  the  date  of  delinquency,  if  no  cer- 
tificate has  already  been  issued,  the  treasurer  is  required  to  issue  one 
to  the  county  and  to  start  action  for  foreclosure.  The  legal  proceed- 
ings in  this  case  are  practically  the  same  as  when  action  is  brought 
by  an  individual.  Summons  may  be  served  and  notice  given,  how- 
ever, in  one  general  notice.  All  the  certificates  issued  at  the  time 
may  be  combined  in  one  book  and  one  action  brought,  all  persons 
interested  being  made  co-defendants.  The  persons  whose  names 
appear  on  the  treasurer's  books  as  owners  are  regarded  as  such. 


THE  GENERAL  PROPERTY  TAX  37 

§14.  At  the  last  session  of  the  legislature  an  attempt  was  made 
to  bring  about  a  reduction  in  the  fifteen  per  cent  interest  charge 
on  delinquent  taxes.  Regarded  as  a  rate  of  interest,  fifteen  per  cent 
is  undoubtedly  high;  but  it  is  not  merely  as  a  rate  of  interest  that  it 
should  be  regarded.  It  is  a  penalty,  designed  to  prevent  the  owners 
of  property  from  allowing  taxes  to  become  delinquent.  That  a  pen- 
alty of  some  sort  is  desirable  would  seem  to  be  beyond  question. 
The  State  and  its  subdivisions  are  not  in  the  banking  business. 
To  allow  taxes  to  become  delinquent  means  delay  in  securing  the 
public  revenues ;  and  since  the  government  must  be  carried  on  this, 
if  done  on  a  large  scale,  means  public  borrowing.  In  practice  such 
borrowing,  whether  or  not  the  difficulty  was  due  to  delinquency  in 
the  payment  of  taxes,  has  not  infrequently  been  done  by  what  amount 
to  forced  loans.  Warrants  have  been  issued  against  which  there  were 
no  funds  in  the  treasury.  Government  employees  do  not  ordinarily 
wish  to  invest  their  wages  in  public  securities ;  nor  do  other  creditors, 
as  a  rule,  wish  to  hold  warrants.  To  adopt  a  practice  of  placing 
upon  them  the  responsibility  of  securing  cash,  especially  if,  as 
sometimes  happens,  the  warrants  will  be  accepted  elsewhere  only  at 
a  discount,  is  bad  business  and  bad  public  finance,  not  to  say  bad 
public  morals. 

It  is  said  that  before  the  passage  of  the  law  requiring  fifteen 
per  cent  interest  a  very  large  proportion  of  the  taxes  commonly 
ibecame  delinquent;  and  in  deciding  on  the  amount  of  tax  levies  al- 
lowance was  made  for  the  fact  that  taxes  would  not  be  paid 
promptly.^® 

It  may  be  thought  that  the  government  has  at  least  good  security 
for  the  eventual  payment  of  the  amounts  due ;  but  it  would  seem  that, 
in  practice,  delay  has  sometimes  meant  serious  loss.  It  appears 
that  before  the  fixing  of  the  high  interest  rate,  there  were  taxpayers 
who  would  allow  their  taxes  to  become  delinquent  for  a  term  of 
years,  and  when  any  move  was  made  to  compel  payment  would  ap- 
pear with  a  proposal  for  a  compromise  on  the  basis  of  a  certain  per 
cent  of  the  tax,  without  interest.  The  treasury  being  in  need  of 
funds,  the  county  commissioners  would  accept  the  offer.  One  case 
is  cited  in  which  a  corporation  was  able  to  save  $50,000  in  this  way 
at    the    expense    of    the    other    taxpayers. ^^      This    was    doubtless    an 

"F.    E.    Jones,    "Tax    Delinquent    Certificates,'    14     "County    Assessors" 
(1912),  p.  55. 

''Ibid.,   p.    56. 


38  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

extreme  case;  and  the  practice  might  liave  been  prevented  in  some 
other  way  than  by  the  charging  of  a  high  rate  of  interest.  It  illus- 
trates, however,  a  way  in  which  delay  in  payment  may  result  in 
eventual  loss. 

As  regards  the  hardship  of  the  interest  rate  it  must  be  remem- 
bered that  the  taxpayer  knows,  roughly,  what  he  will  have  to  pay 
long  before  the  time  for  payment  arrives.  Early  in  February  he 
learns  the  exact  amount.  The  tax  is  not  deliquent  until  the  end  of 
May,  and  even  then,  in  the  case  of  real  estate,  unless  the  amount 
to  be  paid  is  very  small,  half  of  the  payment  may  be  postponed  until 
the  end  of  November. 

There  are  doubtless  special  cases  in  which  the  fifteen  per  cent 
interest  charge  works  a  real  hardship;  and  it  is  true  that,  so  far  as 
possible,  the  public  should  be  a  reasonable  creditor  as  well  as  a  good 
debtor.  If  a  charge  of  less  than  fifteen  per  cent  would  be  sufficient 
to  deal  with  substantially  all  cases  not  worthy  of  special  consideration 
a  lower  charge  should  be  imposed ;  and  if  a  better  plan  of  accom- 
plishing the  desired  end  can  be  devised  it  should  be  adopted.  If  it 
be  decided  that  the  State  should  make  a  practice  of  lending  to  in- 
dividuals the  amount  of  their  taxes,  provision  should  be  made  to 
enable  it  to  pay  its  own  debts  when  due.  Upon  the  whole  it  may  be 
doubted  that  the  fifteen  per  cent  charge  is  too  high. 

§15.  It  will  be  noticed  that  the  collection  of  taxes,  not  includ- 
ing those  that  are  delinquent,  takes  nearly  two  years  from  the  pre- 
liminary work  of  assessment  to  the  final  payment.  The  tax  bills 
that  will  be  sent  out  next  February  are  based  on  the  assessment  made 
last  March.  In  the  case  of  personal  property  payment  must  be  made 
by  the  fifteenth  of  next  March,  while  in  the  case  of  most  real  property 
payment  need  not  be  completed  until  the  end  of  the  following  No- 
vember. 


Chapter  IV. 

THE   GENERAL    PROPERTY   TAX: 
County  Assessment;  General  Aspects 

§1.  Most  of  the  work  of  assessment  for  the  general  property 
tax  is  done  by  the  county  assessors  under  the  supervision  of  the 
State  Board  of  Tax  Commissioners.  The  latter,  however,  itself  at- 
tends to  the  very  important  work  of  the  assessment  of  the  operating 
property  of  railroad  and  telegraph  companies,  including  interurban 
and  street  railways.  Property  of  this  sort  is  largely  intercounty  in 
character,  and  for  that  reason,  if  for  no  other,  a  central  assessing 
authority  is  desirable.  There  are,  however,  a  number  of  other  forms 
of  property  having  a  similar  intercounty  character  that  are  left  to  the 
care  of  the  county  assessors. 

§2.  The  system  under  which  the  county  is  made  the  assessing  dis- 
trict is  by  no  means  universal  in  the  United  States,  and  even  in  Wash- 
ington there  are  a  few  exceptional  cases.  In  many  parts  of  the  country, 
particularly  in  New  England,  a  smaller  unit  is  adopted.  Commonly 
it  is  the  township,  and  in  some  cases  it  is  a  single  ward  in  a  city. 
In  each  of  these  districts,  however  small,  there  is  an  assessor  or  a 
board  entrusted  with  the  work.  In  some  states  these  local  assessors 
are  subject  to  but  a  very  small  degree  of  central  control.  In  others 
they  work  under  varying  degrees  of  supervision,  exercised  by  county 
assessors,  boards  of  supervision,  boards  of  review,  or  some  other 
authority.  In  many  cases  there  are  boards  of  equalization  which 
have  the  power,  not  only  to  make  corrections,  but  to  exercise  some 
degree  of  supervision.  In  a  few  states  power  is  vested  in  the  tax 
commissioners  to  remove  an  assessor  who  is  unable  or  unwilling  to 
do  his  work  properly.  The  difficulties  in  the  way  of  the  exercise  of 
such  power,  however,  are  often  so  great  as  to  render  it  ineffective.^ 
It  would  perhaps,  be  possible  to  adopt  a  system  which,  while  retain- 
ing township  assessors,  subjected  them  to  such  a  degree  of  control 
that  the  work  of  assessment  was  highly  centralized;  but  it  may  be 
questioned    whether   this    would    really    be    a    township    system,    even 

'See  the  discussion  of  "Administrative  Problems."  Proceedings  of  the 
Fourth  International  Conference  on  State  and  Local  Taxation,  pp.  357-383. 
The  proceedings  of  these  conferences  are  published,  with  some  variation 
of  title,  by  the  National  Tax  Association,  or.  as  it  was  called  in  1909 
and  1910,  the  International  Tax  Association.  Hereafter  they  will  be  re- 
ferred to  as  National  Tax  Association,  preceded  by  the  number  of  the 
volume. 

(39) 


40  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

though  the  assessors  were  locally  elected.  It  is,  of  course,  the  real 
location  of  power  that  is  of  importance. 

The  chief  advantages  of  the  small  assessment  district  are  pre- 
sumably to  be  found  in  the  fact  that  the  assessor  is  familiar  with 
local  conditions.  The  chief  advantage  of  the  large  district  lies  in 
the  greater  probability  of  uniform  treatment  and  the  fact  that  it  is 
possible  to  employ  a  man  to  devote  his  whole  time  to  the  work  at 
a  salary  sufficient  to  secure  a  thoroughly  competent  assessor.  The 
relative  importance  of  these  considerations  depends  upon  circum- 
stances. Familiarity  with  local  conditions  may  count  for  a  great 
deal  where  property  is  simple  in  kind  and  owned  by  individuals 
whose  interests  are  chiefly  local  in  character.  It  loses  much  of  its 
importance  when  among  the  property  owners  are  great  corporations, 
and  economic  conditions  are  complex.  In  New  England  the  town- 
ship is  a  very  much  more  important  governmental  unit  than  it  is  in 
Washington ;  and  a  much  larger  proportion  of  the  revenues  are  speni 
by  it.  Under  such  circumstances  uniform  assessments  are  of  much 
less  importance  than  they  are  where  the  various  localities  contrib- 
ute more  largely  to  the  common  expenditure.  The  difference,  how- 
ever, is  mainly  one  of  degree ;  and  even  in  those  sections  of  the 
country  in  which  conditions  are  most  favorable  to  local  assessment 
the  importance  of  central  control,  if  not  of  central  administration,  is 
coming  to  be  more  generally  realized."  The  subject  is,  of  course, 
more  or  less  bound  up  with  the  policy  of  "home  rule"  which,  so 
far  as  it  bears  upon  taxation,  will  be  discussed  later. 

Although  the  system  of  county  assessors  is  the  rule  in  Wash- 
ington, it  has  been  greatly  modified  in  some  of  the  counties. 
The  people  have  the  power  to  adopt  a  township  system  of  government, 
and  in  Spokane  and  Whatcom  Counties  they  have  done  so.  In  Spo- 
kane County,  for  example,  township  assessors  are  elected  for  those 
parts  of  the  county  lying  outside  of  incorporated  cities,  the  latter 
being  left  under  the  care  of  the  county  assessor.  The  county  as- 
sesor  is  supposed  to  have  supervisory  powers  over  the  township  as- 
sessors ;  but  in  practice  such  power  has  been  found,  as  it  has  been 
found  elsewhere,  very  difficult  to  make  effective.     The  result,  accord- 

'Ohio  has  now  a  highly  centralized  system  and  very  remarkable  re- 
sults have  been  obtained.  Even  a  very  large  amount  of  intangibles  have 
been  placed  upon  the  list,  though,  according  to  Professor  Lockhart's  esti- 
mate, less  than  half  of  those  that  are  legally  taxable.  See  I..ockhart,  "Re- 
cent Developments  in  Taxation  in  Ohio,"  Quarterly  Journal  of  Economics, 
Vol.  XXIX  (May,  1915),  pp.  480-521;  Peckinpaugh,  "Operation  of  the  New- 
Centralized  Tax  Law  in  Ohio,"  8  National  Tax  Association,  pp.  127-131.  It 
should  be  noticed  that  in  Ohio  the  rate  for  all  purposes  is  limited  to  15 
mills   on    true   value.      Even   this   Is  very   high   for   some    kinds   of   property. 


THE  GENERAL  PROPERTY  TAX  41 

ing  to  the  State  Board  of  Tax  Commissioers,  was  disastrous  to  uni- 
formity in  assessment  and  equality  in  taxation.  The  instructions  of 
the  county  assessor  were  disregarded.  The  townships  were  enabled 
to  dodge  their  share  of  county  and  state  taxes.  The  county  assessor 
testified,  under  oath,  that  he  had  been  forced  to  reduce  the  ratio 
of  assessment  in  the  cities  in  order  to  save  them  from  unjust  and 
unfair  taxation.  "The  fact  is,"  reported  the  Commissioners,  "that 
for  a  well  organized,  efficient  department,  under  the  supervision  of 
a  competent  official,  selected  by  all  the  people  of  his  county  and 
who,  of  necessity  must  treat  all  sections  alike,  has  been  substituted 
a  system  with  no  head,  devoid  of  organization  and  evidently  serving 
local  interests  regardless  of  the  welfare  of  the  community  at  large."^ 

It  should  be  noted  that  the  Commissioners  do  not  place  the  re- 
sponsibility for  the  evil  conditions  they  describe  upon  the  shoulders 
of  the  individual  assessors.  There  is  no  good  reason  for  supposing 
that,  in  the  majority  of  cases,  these  men  are  any  more  willing  to  be 
unfair  than  are  their  fellow-citizens,  and  certainly  no  charge  of  der- 
eliction of  duty  is  made.     The  fault  is  in  the  system. 

The  assessor,  whatever  the  size  of  his  district,  holds  a  very  im- 
portant office;  and  it  is  a  matter  of  great  consequence  that  he  be 
a  man  of  considerable  ability  and  experience,  and  thoroughly  hon- 
est. The  conditions  governing  the  selection  and  retention  in  office 
of  county  assessors  in  this  state  are  unfavorable  in  several  respects. 
The  office  is  a  political  one;  the  term  for  which  it  may  be  held  is 
short;  and  the  remuneration  is  small.  It  may  be  admitted,  however, 
that  as  a  class,  the  assessors  seem  to  be  men  really  interested  in  their 
work  and  desirous  of  doing  it  justly  and  well. 

§3.  The  assessor,  like  most  other  county  officials,  is  chosen  at  the 
biennial  elections.  To  many  people  any  method  of  selecting  public 
officials  other  than  by  popular  vote  seems  undemocratic.  True  de- 
mocracy, however,  means,  not  that  every  official  shall  be  elected,  but 
that  the  government  shall  be  really  controlled  by  the  people.  Where 
there  are  many  offices  to  be  filled  only  the  highest  receive  anytliing 
like  the  attention  they  deserve;  and  the  long  ballot  almost  necessarily 
results  in  the  election  of  candidates  whose  merits  the  people  have 
been  unable  to  consider.  The  assessor  is  but  one  of  many  candi- 
dates. At  the  time  he  is  chosen  the  people  also  vote  for  members  of 
the    United    States    House    of    Representatives,    and    perhaps    for    a 

'Third  Biennial  Report  of  the  State  Board  of  Tax  Commissioners 
(1910^,  pp.  17  and  IS.  Hereafter  these  reports  will  be  referred  to  simply 
as   Tax   Commissioners,    preceded   by   the   number   of   the   report. 


42  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

Senator  and  for  the  President ;  for  members  of  both  houses  of  the 
State  Legislature,  and  perhaps  for  the  Governor  and  Judges  of  the 
Supreme  Court;  and  for  a  considerable  number  of  county  officers. 
They  have  also  to  pass  on  initiative  and  referendum  measures ;  and  if 
present  indications  are  to  be  trusted  these  will  continue  to  be  nu- 
merous. Under  such  conditions  an  intelligent  vote  on  the  candidates 
for  county  assessor  is  hardly  to  be  expected. 

The  work  of  the  assessor  is  almost  entirely  administrative, 
rather  than  political.  With  questions  of  public  policy  he  has  very 
little  to  do.  It  is  his  business  to  determine  the  value  of  property  for 
the  purpose  of  taxation,  treating  all  property  owners  without  fear  or 
favor,  and  to  show  on  the  tax  rolls  the  amounts  to  be  collected  from 
each.  In  determining  the  rate  of  taxation  he  simply  makes  a  math- 
ematical computation,  the  factors  being  the  value  of  the  property 
within  his  county  as  equalized,  and  the  amount  of  taxes  authorized 
by  other  officials.  The  "extension"  of  taxes  is  simply  the  applica- 
tion of  the  rate  to  the  holders  of  real  and  personal  property.  As- 
sessors are  frequently  blamed  for  high  taxes,  but  for  this  they  are 
not  responsible.  The  most  they  can  do  is  to  help  their  counties 
to  dodge  their  fair  share  of  state  taxes ;  or  perhaps,  by  the  use  of 
the  same  methods,  to  protect  them  from  similar  attempts  on  the  part 
of  other  counties.  Even  this  is  possible  only  so  far  as  the  State 
Board  of  Equalization  fails  in  its  work.  It  is  the  business  of  the 
assessor,  not  to  determine  public  policy,  but  to  ascertain  certain 
facts,  and  to  make  such  use  of  the  facts  as  is  prescribed  by  law. 
For  this  the  qualities  needed  are  ability,  sound  judgment,  experi- 
ence, and  honesty. 

Merely  to  make  the  office  of  assessor  appointive  would  not,  of 
course,  guarantee  the  selection  of  the  best  men  available.  Good  po- 
litical machinery  does  not  insure  good  government,  though  without 
it  the  best  results  cannot  be  attained.  It  is  highly  desirable  that 
the  responsibility  for  the  effective  working  of  the  tax  system  be  cen- 
tralized ;  but  only  on  condition  that  those  in  whom  responsibility  is 
centered  are  held  to  a  strict  account.  If  this  is  to  be  done  the  non- 
political  character  of  the  work  must  be  understood  by  the  people ; 
they  must  have  a  real  desire  that  it  be  done  well;  and  they  must 
make  this  the  test  by  which  they  judge  the  person  or  persons  re- 
sponsible. In  the  opinion  of  the  author  the  conditions  in  Washing- 
ton are  such  that  the  establishment  of  a  well  organized  administra- 


THE  GENERAL  PROPERTY  TAX  43 

tive  system,  headed  perhaps  by  the  State  Board  of  Tax  Commission- 
ers, would  be  a  great  step   in  advance. 

§4.  Not  only  are  the  present  arrangements  unfavorable  to  the 
selection  of  the  best  man  available,  but  when  a  good  man  is  secured 
he  cannot  long  be  retained.  The  term  for  which  the  assessor  is 
chosen  is  two  years,  and  the  constitution  provides*  that  "No  county 
officer  shall  be  eligible  to  hold  his  office  for  more  than  two  terms  in 
succession."  Under  certain  conditions  such  a  provision  has  some 
justification.  In  so  far  as  the  work  is  merely  supervisory  a  change, 
once  in  a  while,  helps  to  prevent  the  growth  of  abuses  and  the  fall- 
ing of  the  administrative  machinery  into  a  rut.  Where,  however,  the 
work  is  that  of  a  trained  expert,  long  continuance  in  office  should 
actually  increase  the  value  of  the  officer  to  the  community ;  and 
where  efficient  service,  rather  than  popularity,  is  the  test  by  which 
a  man  is  judged  the  danger  that  he  will  become  intrenched  in  office 
is  reduced  to  a  minimum.  In  this  connection,  as  in  the  selection  of 
the  assessor  in  the  first  place  it  is  vitally  important  that  the  people 
shall  really  desire  that  the  work  be  well  done. 

The  difficulty  created  by  the  constitutional  rule  that  the  assessor 
shall  be  ineligible  for  more  than  two  successive  terms  is  sometimes 
partially  overcome  by  electing  a  retiring  assessor's  chief  deputy  to 
succeed  him.  This  would,  at  first  sight,  appear  to  be  an  important 
consideration  since  it  would  mean  that  the  office  would  be  filled  by 
a  man  who  had  already  worked  in  it  for  some  years.  It  must  be 
remembered,  however,  that  the  office  in  question  is  a  political  one, 
though  it  ought  not  to  be;  and  it  is  greatly  to  be  doubted  whether 
the  fact  that  a  man  has  already  served  as  chief  deputy  is  a  very 
great  factor  in  securing  his  election.  Indeed,  in  a  large  county 
comparatively  few  know  who  is  the  chief  deputy ;  and  in  the  campaign 
attention  is  largely  centered  on  candidates  for  higher  offices.  It  is 
probable,  however,  that  the  chief  deputy  has  some  advantage  over 
his  opponents.  A  few  counties  have  secured  the  advantage  of  having 
experienced  men  by  rotating  the  office  between  two,  the  one  elected 
appointing  the  other  as  his  chief  deputy.  Such  a  plan,  however,  can 
hardly  be  regarded  as  generally  practicable. 

The  work  of  the  assessor  should  be  regarded  as  a  profession 
for  which  a  man  will  carefully  prepare  himself  and  in  which  he 
will  look  forward  to  a  lifetime  of  service,  subject  to  the  possibility 
that  he  will  be  promoted  to  a  higher  office.     This  is,  indeed,  a  con- 

♦Article    XI,    Section    7. 


44  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

dition  of  attracting  the  best  men  to  the  work.  Careful  training  is 
hardly  worth  a  man's  while  unless  there  is  some  assurance  that  it 
will  long  be  of  use.  Indeed  it  is  probable  that  security  of  tenure 
is  an  important  consideration  to  that  type  of  mind  necessary  for  the 
making  of  the  expert.  It  is  a  question  of  the  kind  of  ability  as  well 
as  of  the  amount.  We  have,  undoubtedly,  some  very  good  men 
among  our  tax  assessors,  but  we  should  probably  have  more  of  them 
if  the  office  were  commonly  filled  by  promotion  or  by  the  appointment 
of  men  trained  elsewhere;  and  made  vacant  by  promotion,  death, 
disability,  misconduct,  or  demonstrated  incompetency. 

§5.  The  pay  of  the  assessor  ranges  from  $4  a  day  in  counties 
having  a  population  of  less  than  16,000  to  $2,200  a  year  in  the 
largest.  This  seems  small  for  a  man  who  is  required  to  ascertain 
the  value  of  all  taxable  property  in  his  county,  from  the  lands  and 
goods  of  an  individual  of  modest  means  to  the  property  of  great 
corporations  engaged  in  mercantile,  manufacturing,  or  extractive  in- 
dustries. Some  of  the  men  with  whom  the  assessor  must  deal  are 
men  of  high  ability,  and  however  desirous  they  may  be  that  the  busi- 
nesses which  they  represent  shall  deal  justly  with  the  state,  are 
under  strong  inducements  to  keep  taxes  as  low  as  possible. 

It  is  hardly  necessary,  however,  that  the  salary  paid  to  the 
assessor  be  very  large.  In  the  first  place,  he  is  not  an  altogether 
independent  official,  but  is  subject  to  the  supervision  of  the  State 
Board  of  Tax  Commissioners.  In  the  second  place,  public  office  has 
attractions  of  its  own,  and  the  government  can  commonly  secure,  un- 
der favorable  conditions,  a  higher  grade  of  ability  than  can  corpora- 
tions for  the  same  remuneration. 

§6.  The  work  of  assessment  is,  of  course,  too  great  for  one  man  to 
perform  without  assistance.  Not  only  is  there  need  of  an  office 
force,  but  a  number  of  men  must  be  appointed  to  share  in  the  actual 
work  of  listing  and  valuing  property.  First  of  these  is  the  chief 
deputy.  The  man  with  whom  the  ordinary  property  holder,  at  least 
in  all  but  the  smaller  counties,  comes  in  contact  is  a  field  deputy. 
In  some  cases  experts  have  been  employed  for  special  lines  of  work, 
such  as  the  "cruising"  of  timber  lands,  or  the  valuation  of  ma- 
chinery or  merchants'  stocks  in  trade.  In  a  few  instances  use  has 
been  made  of  appraisal  companies,  but  cases  of  this  sort  are  ex- 
ceptional. 

It  is  a  constant  source  of  complaint,  on  the  part  of  assessors, 
that    they    are    unable    to    secure    competent    field    deputies.       By    a 


THE  GENERAL  PROPERTY  TAX  4S 

state  law  the  pay  is  limited  to  $3.50  a  day;  and  in  some  cases  the 
county  commissioners  have  refused  to  allow  even  this  much.  It 
appears  that  in  a  few  instances  they  have  assumed  the  responsibility 
for  allowing  more.  These  men,  it  must  be  remembered,  are  engaged 
in  inspecting  property,  in  taking  the  declarations  which  the  holders 
of  personal  property  are  required  to  make,  and  in  agreeing  with  the 
owner  as  to  the  value  of  the  property  referred  to  in  the  declaration. 
Their  work  is,  of  course,  supervised  by  the  assessor,  and  is  checked 
by  data  in  his  office,  and  of  course  the  work  of  one  field  deputy  can 
be  used  to  some  extent  as  a  check  on  that  of  another  dealing  with 
similar  property.  If  the  taxpayer  is  not  satisfied  he  may  appeal 
to  the  assessor,  but  he  is  not  likely  to  do  so  when  the  state  would 
gain  from  the  correction  of  an  error. 

As  an  illustration  of  the  difficulty  of  securing  competent  field 
deputies  the  following  may  be  quoted*^: 

"The  next  question  to  be  considered  is  the  selection  of  these  men. 
Usually  each  one  of  the  [County]  Commissioners  has  some  pet  out  of 
a  job,  likewise  out  of  money.  You  are  not  in  a  position  to  turn 
these  pets  down,  so  you  must  place  them  on  the  list,  regardless  of  what 
their  experiences  may  have  been.  My  experience  has  been  that 
most  of  the  good  men  you  would  like  to  have  for  the  work  are 
already  employed  and  would  not  quit  their  present  work  for  a  job 
that  would  last  only  from  forty  to  sixty  days  at  three  dollars  per 
day.  As  a  matter  of  fact  we  have  to  take  such  men  as  we  can  get 
for  the  work.  Perhaps  this  year  we  shall  have  a  larger  field  to 
draw  from,  as  there  are  more  unemployed  men  than  usual.  As  it  is 
I  am  short  of  applications  for  the  work  so  far." 

§7.  While  the  county  assessor  is  primarily  responsible  for  the 
assessment  of  all  property  except  the  operating  property  of  railroad 
and  telegraph  companies,  his  conclusions  are  not  necessarily  final, 
and  he  is  subject  to  some  control  by  the  state  authorities.  His  as- 
sessments may  be  revised  by  the  county  board  of  equalization  and, 
as  far  as  municipal  taxes  in  cities  of  the  first  and  second  class  are 
concerned,  by  the  city  board.  The  State  Board  of  Equalization,  while 
it  does  not  change  the  assessments  as  equalized  by  the  county  boards, 
apportions  the  state  tax  on  the  basis  of  its  own  equalization.^ 

Among  the  duties  of  the  State  Board  of  Tax  Commissioners  is 
the    supervision    of   the    entire    tax   system    of    the   state.      So    far   as 
their  other  duties  permit  they  are  required  to  visit  the  various  coun- 
ts.  C.   Davis,   Assessor  of  Lewis  County,   16   Convention   of   County   As- 
sessors, p.   44. 

•In  regard  to  the  methods  of  equalization  see  below,  pp.  71-2  and  88-9. 


46  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

ties,  to  confer  with  and  advise  the  taxing  officials,  to  be  familiar  with 
the  methods  adopted  by  them,  to  prescribe  the  forms  and  blanks  that 
shall  be  used,  and  to  determine  what  legal  proceedings  shall  be 
taken.  Their  directions  to  the  assessors  and  other  officials  are  not 
merely  advisory,  but  mandatory.  In  short,  the  law  seems  to  con- 
template a  fairly  thorough  system  of  supervision.  The  commis- 
sioners, however,  have  no  power  to  remove  an  assessor,  though  in 
cases  of  neglect  or  misconduct  such  as  would,  under  the  statutes, 
justify  removal,  they  may  set  the  law  in  motion.  They  have,  of 
course,  no  power  to  choose  assessors.  The  system  is  one  of  super- 
vision, rather  than  of  control. 

§8.  In  this  connection  mention  should  be  made  of  the  annual 
convention  of  county  assessors.  Like  a  number  of  other  county 
officials,  including  commissioners,  auditors,  and  treasurers,  the  as- 
sessors have  for  a  number  of  years  been  accustomed  to  meet  annually 
to  discuss  the  problems  with  which  they  are  confronted  in  their  work. 
Until  a  few  years  ago  attendance  at  these  conventions  was  voluntary, 
there  being  no  provision  in  the  law  recognizing  them.  In  1911, 
however,  the  legislature  passed  a  statute  directing  the  commissioners 
to  call  the  assessors  together  annually  at  Olympia  for  conference 
and  instructions,  and  providing  for  the  payment  of  the  expenses  of 
those  in  attendance. 

The  value  of  these  conventions  is  very  great.  The  author  has 
had  the  pleasure  of  attending  a  number  of  them,  and  has  been  much 
impressed  with  the  way  in  which  the  problems  that  have  arisen  in 
the  different  counties  have  been  presented  and  discussed.  Their 
proceedings^  constitute  a  very  important  contribution  to  the  literature 
of  the  subject,  and  should  be  available  to  all  who  are  interested  in  the 
working  of  our  tax   system. 

§9.  While  the  work  of  assessment  is  necessarily  extended  over 
a  considerable  period  of  time,  the  law  requires  that  all  property 
where  possible  shall  be  assessed  with  reference  to  its  value  on  the 
first  day  of  March.  The  reasons  for  a  definite  assessment  day 
require  but  little  comment.  Under  the  theory  of  the  general  prop- 
erty tax  all  property  should  be  treated  alike.  Since  the  value  of 
property  is  subject  to  some  fluctuations,  there  would  obviously  be  a 
chance  of  inequality  if  each  person  were  taxed  on  the  value  of  his 
property  on  the  day  upon  which  the  assessor  happened  to  call  upon 

'For    some    years    printed    without    cost    to    the    state    by    the    Pioneer 
Bindery  and  Printing  Company,  of  Tacoma. 


THE  GENERAL  PROPERTY  TAX  47 

him,  and  serious  abuses  would  be  possible.  Nor  is  the  particular 
date  chosen  a  matter  of  indifference.  The  levy  and  collection  of 
the  tax  require  a  considerable  amount  of  time,  and  if  taxes  are  to  be 
laid  according  to  the  calendar  year  March  1st  is  a  natural  assess- 
ment day.  Of  more  importance  than  this  is  the  fact  that  the  choice 
of  the  assessment  day  is  not  without  its  effect  on  the  amount  of 
taxes  collected  from  different  members  of  the  community,  since  in 
some  lines  of  business  men  are  likely  to  have  on  hand  a  larger 
amount  of  personal  property  at  some  seasons  than  at  others. 

It  has  been  suggested  by  one  of  the  leading  writers  on  taxation' 
that  the  very  common  selection  of  a  day  in  the  winter  or  spring 
is  made  in  order  to  avoid  placing  much  of  a  tax  on  the  farmers'  crops, 
these  being  usually  specifically  exempt  in  those  States  in  which  the 
assessment  day  is  in  the  autumn.  This,  at  first  glance,  may  seem 
to  result  in  an  unfair  discrimination  in  favor  of  the  farmers.  As  a 
matter  of  fact,  however,  there  seems  little  reason  to  doubt  that  the 
general  property  tax,  in  its  actual  working,  bears  more  heavily  upon 
the  farmers  than  upon  almost  any  other  class  in  the  community;  and, 
in  practice,  assessment  at  a  time  when  it  will  not  fall  upon  crops 
in  the  hands  of  the  farmers  probably  does  more  to  remedy  than  to 
create  an  injustice.  It  would  be  much  better,  however,  if  the  system 
were  such  that  no  remedy  of  this  sort  was  necessary. 

§10.  Personal  property  in  Washington  is  valued  annually.  Real 
property  is  valued  only  in  the  even  numbered  years,  subject  to  re- 
adjustment in  case  property  previously  exempt  becomes  taxable,  or 
in  case  improvements  are  made  or  removed.  Except  for  such  changes 
as  these,  taxes  in  the  odd  numbered  years  are  based  on  the  assessment 
of  the  preceding  year.  Annual  valuation  of  personalty  is  in  many 
cases  practically  necessary.  The  amount  of  such  property  held  by 
any  taxpayer  is  likely  to  change  considerably  from  year  to  year;  and 
even  where  the  property  is  permanent  in  character  changes  in  own- 
ership are  commonly  impossible  to  follow.  The  case  of  real  estate, 
however,  is  different.  Changes  in  ownership  may  take  place,  but  this 
does  not  cause  any  great  difficulty  since  such  changes  can  be  followed 
readily,  and,  in  an}'  event,  the  tax  constitutes  a  lien  upon  the  prop- 
erty itself.  The  difficulty  caused  by  changes  in  value  is  not  so  eas- 
ily disposed  of;  but  it  may  be  questioned  whether  the  hardship  re- 
sulting is  sufficiently  great  to  warrant  the  expenditure  that  an  annual 

•C.   C.  Plehn,  "Introduction   to   Public  Finance,"  p.   265. 


4S  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

valuation  would  imply.®  It  is  worth  noticing  that  there  are  a  few 
States  in  which  valuation  is  much  less  frequent  than  it  is  in  Wash- 
ington. 

§11.  Prior  to  the  legislative  session  of  1913  the  law  required 
that  all  property  should  be  assessed  at  its  true  value  in  money,  and 
specifically  forbade  the  assessor  to  adopt  any  lower  standard  of 
value  because  it  was  to  be  used  for  the  purpose  of  taxation.  True 
value  is  so  fully  and  carefully  defined  in  the  statute  that  any  mis- 
understanding would  seem  to  be  impossible.  Upon  filing  his  books 
with  the  clerk  of  the  county  board  of  equalization  (at  that  time  the 
county  auditor)  the  assessor  was  required  to  certify  under  oath 
that  the  value  given  for  each  kind  and  description  of  property  was 
the  "true  and  fair  value"  to  the  best  of  his  knowledge  and  belief. 
In  1913  the  law  was  amended  so  as  to  provide  that  property  should 
be  assessed  at  "not  to  exceed  fifty  per  cent  of  its  true  and  fair  value 
in  money. 

It  is  just  possible  that  the  law  as  it  stood  before  this  amend- 
ment was  obeyed  at  some  time  in  some  county;  but  the  author  is 
unable  to  say  when  or  where.  Perhaps  it  has  been  obeyed  in  the 
case  of  a  few  individuals.  As  regards  particular  classes  of  property 
but  one  instance  has  come  to  the  author's  notice.  "Other  improved 
lands"  in  Skamania  County  were  in  1908  assessed  at  one  hundred 
per  cent  of  their  value,  according  to  the  findings  of  the  State  Board 
of  Equalization.  A  careful  search  through  unpublished  records  might 
reveal  other  instances.  The  Proceedings  of  the  State  Board  of 
Equalization,  as  published  by  the  State  Board  of  Tax  Commission- 
ers, however,  show  no  case  in  which  all  the  property  in  any  county 
has  been  assessed  at  its  true  value.  Assessment  at  sixty  per  cent  or 
more  was  unusual.  The  average  for  the  State,  previous  to  1913,  va- 
ried between  39.25  per  cent  and  43.96  per  cent;  and  this  in  spite  of 
resolutions,  passed  by  the  assessors  in  their  annual  conventions,  that 
property  should  be  assessed  at  sixty  per  cent  of  its  true  value.  The 
amendment  of  the  law  does  not  appear  to  have  had  a  very  great 
effect  on  the  practice;  but  in  a  few  counties  in  the  past  two  years 
the  new  law  seems  to  have  been  observed. 

§12.  To  many  persons  the  requirement  that  the  true  value  shall 
be  used  for  the  purpose  of  taxation  seems  useless  if  not  pernicious. 

•For  a  good  discussion  of  the  subject  see  Raper,  "Frequency  in  Assess- 
ment," 8  National  Tax  Association,  pp.   51-60. 

'"Remington    and    Ballinger    Code    III,    Section    9112. 


THE  GENERAL.  PROPERTY  TAX  49 

When  a  given  amount  of  money  is  to  be  raised  a  high  valuation  means 
a  low  rate  and  a  low  valuation  a  high  rate,  the  burden  of  taxation 
remaining  the  same.  This  is  doubtless  true  so  far  as  the  same  ratio 
of  assessed  to  true  value  is  used  in  all  cases.  As  a  matter  of  fact, 
however,  the  ratio  varies  greatly  from  county  to  county.  In  1911, 
for  example,  the  State  Board  of  Equalization  found  that  the  ratio 
varied  from  22.48  per  cent  in  Klickitat  County  to  50  per  cent  in 
Clallam  County,  the  average  for  the  State  being  42.30  per  cent. 

It  is  doubtless  true  that  in  so  far  as  the  State  Board  of  Equal- 
ization is  able  to  ascertain  the  ratio  applied  in  each  county^  ^  such 
discrepancies  as  these  can  be  corrected,  so  that  each  will  bear  its 
fair  share  of  the  State  tax.  It  is  also  true  that  if  the  assessors  were 
required,  in  practice,  to  make  use  of  the  true  value  discrepancies 
would  still  exist,  for  different  assessors  would  estimate  true  value 
differently.  As  will  appear  later,  some  difficulties  of  this  sort  seem 
to  be  inevitable  under  the  general  property  tax.  To  allow  the  as- 
sessors any  discretion  as  to  the  ratio,  however,  simply  increases  the 
difficulties  of  the  State  Board  of  Equalization,  which  are  already 
sufficiently  great.  There  can  be  no  doubt  that  one  important  reason 
for  assessment  at  a  low  ratio  is  often  a  desire  to  protect  the  county 
from  an  unfairly  large  share  of  the  State  tax.  There  is  much  reason 
to  believe  that  the  State  Board  of  Equalization  will  not  be  successful 
in  making  the  readjustment. 

Even  -within  the  county  assessment  at  less  than  true  value  is 
likely  to  result  in  inequality  between  individuals.  As  a  matter  of 
mathematics  it  is  true  that,  other  things  being  equal,  a  given  rate 
on  a  aitj  per  cent  valuation  will  have  the  same  effect  as  half  that 
rate  on  a  hundred  per  cent  valuation.  Other  things,  however,  are 
not  equal,  for  as  a  matter  of  psychology,  the  attention  of  the  tax- 
payer, at  the  time  he  deals  with  the  assessor,  is  focused  on  the  val- 
uation, and  he  is  less  likely  to  insist  that  it  be  fair  to  him  when  he 
knows  that  the  value  for  taxation  will  be  considerably  less  than  the 
true  value.  This,  no  doubt,  makes  matters  easier  for  the  assessor, 
and  ease  in  assessment  has  been  advanced  as  an  argument  in  favor  of 
a  low  valuation.  If  all  taxpayers  were  equally  affected  the  argu- 
ment would  be  a  good  one,  but  as  a  matter  of  fact  they  are  not  all 

"The  figures  of  the  board,  as  the  best  available,  will  be  used  fre- 
quently in  the  following  discussion.  They  must,  however,  be  received 
with  caution.  The  Tax  Commissioners  themselves  admit  that  accurate 
equalization  is  impossible  and  the  railroad  companies  seem  to  feel  very 
sure    that   it    is   not   accomplished.      See    below,    pp.    89ff. 


50  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

equally  affected.  The  low  valuation  will  probably  be  found  to  have 
little  influence  on  the  man  who  has  a  considerable  amount  of  property 
and  is  accustomed  to  dealings  in  values  and  percentages,  and  much 
more  influence  on  others.  Generally  speaking,  therefore,  the  effect 
would  be  to  place  an  unduly  large  share  of  the  burden  on  those 
least  able  to  bear  it. 

It  is  sometimes  argued  that  a  low  ratio  of  assessment  tends  to 
keep  down  taxes.  This,  too,  is  a  matter  of  psychology.  People 
have  become  accustomed  to  a  high  tax  rate,  and  it  is  contended  that 
were  the  valuation  to  be  increased  the  rate  would  not  be  corre- 
spondingly reduced.  Just  as  the  taxpayer,  in  dealing  with  the  as- 
sessor has  his  attention  focused  on  the  valuation,  so  the  legislature 
and  the  other  taxing  authorities,  in  considering  the  amounts  that  may 
be  raised  by  taxation,  have  their  attention  focused  on  the  rate  that 
contemplated  expenditures  will  make  necessary.  Moreover,  for  the 
purpose  of  preventing  excessive  taxation,  the  statutes  provide  maximum 
limits  for  the  rates  that  may  be  imposed ;  and  these  limits  are  pre- 
sumably made  on  the  assumption  of  a  low  valuation.  Unless  these 
statutes  were  changed  an  increase  in  valuation  would,  in  effect,  be 
the  same  as  an  increase  in  the  maximum  lawful  rates. 

There  can  be  no  doubt  that  the  difficulty  is  both  real  and  im- 
portant. The  attempt  has  been  made  to  deal  with  it  in  some  States 
that  have  recently  made  a  real  effort  to  secure  the  assessment  at  true 
value  by  statutory  prohibitions  of  more  than  a  moderate  increase  in 
the  amounts  to  be  collected  in  the  near  future  or  by  a  new  statutory 
limit  in  the  tax  rate.  In  Ohio,  for  example,  both  methods  have 
been  adopted.^-  While  there  are  some  difficulties  in  connection  with 
legislation  of  this  sort,  it  would  seem  a  necessary  step  in  securing 
reform. 

§13.  It  appears,  however,  that  the  chief  reason  for  the  re- 
cently imposed  limitation  on  the  ratio  of  assessed  to  true  value  was 
something  different  from  the  belief  that  a  high  valuation  is  a  cause 
of  high  taxes.  According  to  one  proponent  of  the  law^^  the  only 
object  was  "to  prevent  excessive  bonding."  The  right  of  the  cities 
and  counties  to  issue  bonds  is  limited  by  the  Constitution  to  a  fixed 

"See  R.  M.  Ditty,  "Uniform  Rule  and  Tax  Limit  Legislation  in  Ohio," 
6  National  Tax  Association,  pp.  215-233.  This  paper  is  remarkable  as  being 
one  of  the  very  few  presented  before  a  body  of  tax  experts  in  which  an 
attempt  is  made  to  defend  the  taxation  of  all  property  at  a  uniform  rate. 
The  limit  on  the  amounts  that  might  be  collected  caused  some  difficulties 
and  has  been  repealed.  See  comment  of  Commissioner  Peckinpaugh,  8 
National   Tax   Association    (1914),    p.    387. 

"C.  H.  Shields,  in  "Taxation  In  Washington,"  p.  275. 


THE  GENERAL  PROPERTY  TAX  61 

per  cent  of  the  assessed  value  of  the  property  within  their  jurisdis- 
tions.  In  some  cases  this  limit  has  been  very  closely  approached. 
Further  borrowing  can  be  made  possible  by  an  increase  in  the  ratio 
of  assessed  to  true  value.  It  appears,  therefore,  according  to  this 
authority,  that  the  reason  for  the  limitation  of  assessed  value  was  to 
restrict   public   borrowing. 

Now,  if  it  be  admitted  that  there  is  any  great  danger  of  "ex- 
cessive bonding"  it  is  to  be  regretted  that  the  danger  could  not  be 
met  by  a  frank  and  open  amendment  of  the  laws  relating  to  public 
indebtedness.  Doubtless  there  were  in  this  case  some  serious  diffi- 
culties in  the  way.  A  reduction  in  the  nominal  bond  limit  would  have 
made  necessary  a  readjustment  in  assessed  values  in  many  places. 
This  would  have  given  rise  to  much  opposition,  even  if  the  object  of 
the  proponents  of  the  law  were  generally  approved.  The  indirect 
method  was  much  simpler.  A  bill,  however,  the  ostensible  purpose 
of  which  is  different  from  its  real  purpose  will  often  receive  some 
support  to  which  it  is  not  entitled,  and  it  is  not  impossible  that 
this  is  what  happened  in  the  present  instance. 

In  favor  of  the  existing  law  two  things  may  be  said :  first,  it 
recognizes  the  fact  that  property  is  not  assessed  at  anything  like  its 
true  value,  and  removes  the  almost  irresistible  pressure  on  the  as- 
sessor to  swear  that  he  has  assessed  property  at  its  true  value,  when 
he  and  every  one  else  at  all  acquainted  with  the  situation  knows  that  he 
has  not ;  and,  second,  it  recognizes  the  serious  difficulties  in  the  way 
of  reform.  If  we  were  to  continue  indefinitely  to  make  use  of  the 
general  property  tax  some  effort  should  be  made  to  overcome  these 
difficulties.  As  things  are  it  will  probably  be  better  to  let  reform  in 
this  matter  wait  upon  a  more  thorough  reform  of  the  whole  system. 


Chapter  V. 

THE  GENERAL  PROPERTY  TAX: 
County  Assessment;  Valuation  of  Property 

§1.  While  all  property  is  supposed  to  be  assessed  at  the  same 
percentage  of  its  value,  diflferent  methods  are  used  in  the  case  of 
different  kinds  of  property.  This  is  as  it  should  be,  for  the  methods 
that  may  be  found  most  satisfactory  in  one  case  may  prove  quite  un- 
workable in  another.  Real  estate,  for  example,  is  easily  found,  its 
ownership  is  a  matter  of  record,  and  whatever  may  be  the  difficulties 
of  ascertaining  its  value  there  would  be  little  gained  by  applying 
to  the  owner  for  his  estimate.  For  all  kinds  of  personal  property 
the  law  requires  a  declaration  by  the  owner  or  some  other  person 
responsible  for  the  property.  In  many  cases  the  declaration  is  little 
more  than  a  setting  forth  of  the  results  of  the  assessor's  own  in- 
vestigation. In  others  considerable  reliance  must  be  placed  upon  it. 
It  is  only  in  this  way  that  some  kinds  of  property  can  be  found  at  all. 
Sometimes  the  property  can  be  found  but  the  value  is  so  largely  a 
matter  of  estimate  that  it  is  practically  necessary  to  consult  with  the 
owner,  and,  if  possible,  come  to  some  agreement  with  him.  In  other 
cases  the  value  can  be  calculated,  at  least  in  part,  but  the  calcula- 
tion involves  difficult  problems  in  accounting.  There  are  many  kinds 
of  property,  both  real  and  personal,  and  each  class  presents  prob- 
lems peculiarly  its  own.  To  attempt  to  deal  with  them  all  in  the 
same  way  would  be  decidedly  unfavorable  to  real  equality  in  taxa- 
tion. 

§2.  It  is  generally  agreed  that  there  are  few,  if  any,  classes 
of  property  that  are  more  easily  assessed  than  real  estate.  Land 
and  buildings  cannot  hide  and  they  cannot  run  away.  In  this  State 
the  assessor  is  required  by  law  to  "make  out  in  the  plat  and  descrip- 
tion book  in  numerical  order,  a  complete  list  of  all  lands  or  lots 
subject  to  taxation";  and  in  many  counties  the  actual  practice  goes 
considerably  beyond  the  minimum  requirements  of  the  law.  Improve- 
ments can  be,  and  commonly  are,  indicated  on  the  plat.  It  is  not 
difficult,  as  a  rule,  to  determine  whether  or  not  a  given  piece  of  real 
estate  is  exempt.  There  is  in  this  case  nothing  corresponding  to 
the  exemption  of  $300  worth  of  personalty  to  each  head  of  a  family. 

But  while   real  estate   is   readily   found,   it  is   not   always   easy 

(52) 


THE  GENERAL  PROPERTY  TAX  53 

to  determine  its  value.  As  a  rule  the  difficulties  are  less  serious 
than  they  are  in  the  case  of  most  kinds  of  personal  property ;  but 
in  some  instances  a  valuation  in  which  the  assessor  can  have  rauch 
confidence  seems  to  be  impossible.  It  might  be  supposed  that  in  a 
community  in  which  a  large  number  of  pieces  of  land  are  transferred 
every  year  something  might  be  learned  from  the  prices  at  which  sales 
are  made ;  but,  as  a  matter  of  fact,  the  true  consideration  need  not 
be  expressed  in  the  deed ;  and  the  instances  in  which  it  is  not  ex- 
pressed are  so  numerous  as  to  greatly  impair  the  utility  of  this 
method.  Experts  on  real  estate  values  may  be  consulted,  but  their 
estimates  are  likely  to  differ  widely.^  It  must  be  remembered  that 
the  State  of  Washington  is  developing  rapidly;  and  this  is  naturally 
a  cause  of  many  changes  and  much  uncertainty. 

§3.  In  the  case  of  urban  land  there  is  one  consideration  which 
generally  outweighs  all  others  in  importance.  This  is  location.  To 
be  sure,  there  are  other  things  that  must  often  be  taken  into  account. 
The  character  of  "local  improvements,"  for  example,  makes  some  dif- 
ference. Much  of  the  land  available  for  residences  in  our  cities  is 
itself  unimproved,  and  the  level  of  the  lot  mav  differ  so  greatly 
from  that  of  the  street  that  a  considerable  quantity  of  earth  must  be 
taken  away  or  brought  to  it  before  a  building  can  be  erected.  Such 
matters  as  these,  however,  are  not  the  primary  sources  of  difficulty. 

The  fact  that  in  any  city  there  are  many  real  estate  transac- 
tions makes  assessment  easier  than  it  would  otherwise  be.  It  is 
true  that  little  reliance  can  be  placed  on  the  consideration  named  in 
a  deed;  but  frequent  transfers  do  enable  those  familiar  with  them 
to  form  an  idea  as  to  the  value  of  land  in  a  given  district.  In  many 
cases  this  idea  is  fairly  accurate,  and  this  is  especially  likely  to 
be  true  when  the  land  is  divided  into  lots  of  uniform  shape  and  size. 

While  maps  and  plats  are  commonly  used,  the  methods  of  as- 
sessment are  sometimes  rather  crude.  The  field  deputy  ascertains 
as  well  as  he  can  the  value  of  the  different  lots,  and  comparisons 
and  corrections  are  made  in  the  assessor's  office.      In  recent  years, 

'The  assessor  of  Yakima  County  secured  estimates  of  the  value  of 
the  land,  exclusive  of  improvements,  on  which  the  Yakima  Hotel  stands. 
The  highest  estimate  was  $60,000;  the  lowest,  $28,000.  B.  F.  MoCurdy, 
"The  Basis  and  Equalization  of  Assessments,"  14  County  Assessors,  p.  27. 
This  may  be  an  extreme  case,  but  the  experience  of  New  York  City  in 
acquiring  land  for  a  court  house  is  worth  noticing.  The  following  esti- 
mates,  in  round  numbers,   of  the  site   are  mentioned: 

By    a   tax    department    deputy    $5,.S00,000 

Experts    for    the    city    in    condemnation    proceedings 5,600,000 

Experts   for    the    owners    in    condemnation    proceedings    9,500.000 

Commissioners     in     condemnation     6,000,000 

Lawson    Purdy,    7    National    Tax    Association,   p.  282. 


54  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

however,  the  methods  adopted  have  been  made  much  more  systematic. 
In  some  cases  a  good  deal  of  reliance  is  placed  on  more  or  less  me- 
chanical methods.  In  this  connection  mention  should  be  made  of 
the  Somers  System/  although  so  far  as  the  author  is  aware,  it  has 
never  been  fully  used  in  any  part  of  the  State.  An  important  fea- 
ture of  this  system  is  the  use  of  certain  secret  formulae,  and  for  this 
reason  its  application  makes  necessary  the  employment  of  a  private 
appraisal  company.  Most  of  the  fundamental  principles  on  which 
it  rests,  however,  are  generally  known,  some  of  them  having  been 
in  use  before  the  system  was  devised,  though  discussion  of  the  sys- 
tem has  doubtless  done  much  to  popularize  them.  Some  of  these 
principles  have  been  used  by  the  assessors  of  this   State. 

In  utilizing  a  system  of  this  sort  the  first  step  is  to  prepare  a 
map  of  the  entire  area  to  be  assessed,  the  land  being  divided  into 
blocks  which  are  usually,  though  not  necessarily,  those  made  by  the 
streets.  A  unit  of  measurement  is  then  selected.  In  the  Somers 
System  this  is  a  strip  of  land  one  hundred  feet  deep  and  having  a 
frontage  of  one  foot.  The  value  of  such  a  strip  chosen  from  an 
inside  lot  in  the  block  having  the  most  valuable  frontage  in  the  city 
is  then  taken  as  a  starting  point  and  called  100,  the  value  of  sim- 
ilar strips  elsewhere  is  then  tentatively  determined  and  expressed 
as  a  percentage  of  this.  These  tentative  values  are  then  presented 
for  discussion  by  the  public  generally  or  by  those  best  qualified 
to  judge  of  land  values.  The  theory  is  that  while  it  is  very  difficult 
to  secure  agreement  as  to  the  relative  value  of  given  pieces  of  land, 
a  consensus  of  opinion  can  be  obtained  as  to  the  relative  value  of 
different   frontages   upon  which   considerable  reliance   can  be   placed. 

Several  problems  still  remain :  the  value  of  the  most  valuable 
frontage  must  be  determined ;  allowance  must  be  made  for  the  vary- 
ing depth  of  different  lots ;  and  the  effect  of  the  corner  influence  must 
be  taken  into  account. 

Since  it  is  only  in  the  case  of  the  land  having  the  most  valuable 
frontage  that  the  value  must  be  determined  directly,  the  problem  is 
greatly  simplified.  In  so  far  as  the  theory  upon  which  the  system 
rests  is  correct  an  error  here  will  not  result  in  inequality  between 
different  property  owners  within  the  district.  This  is,  of  course,  of 
more  importance  than  assessment  at  true  value.     Between  different 

=For  a  discussion  of  the  Somers  System  from  the  point  of  view  of  an 
appraisal  company  making  use  of  it  see  W.  W.  Pollocli,  "An  Equitable 
Standard  for  Land  Valuation,"  7  National  Tax  Association,  pp.  234-266. 
Mr.  Pollock's  address  was  followed  by  a  discussion  in  which  the  system 
was  severely  criticised,  pp.  267-285  and  449-454. 


THE  GE:-IERAL   property   tax  55 

districts  inequality  may  still  exist;  but  there  is  no  reason  for  sup- 
posing that  it  will  be  greater  than  would  otherwise  be  the  case.  In 
fact  it  is  likely  to  be  somewhat  less,  since  in  the  attempt  at  equali- 
zation attention  can  be  largely  focused  on  a  comparatively  small 
amount  of  land  in  each  district. 

Where  the  land  is  rectangular  in  shape  and  of  standard  depth, 
away  from  corner  influence,  the  value  of  a  given  lot  is  readily 
obtained  by  multiplying  the  value  of  one  strip  by  the  frontage.  For 
the  purpose  of  dealing  with  lots  of  other  shapes  and  depths  the 
standard  strip  is  divided  into  sections,  which  generally  consist  of 
one  square  foot.  By  the  application  of  a  rule  based  on  accumulated 
experience  the  percentage  of  the  value  of  the  strip  to  be  attributed  to 
each  section  is  then  determined;  and  in  the  same  way  the  value  to 
be  added  for  each  additional  foot  of  depth  is  determined.  The  fact 
that  the  rules  applied  for  this  purpose  differ  somewhat  under  differ- 
ent systems  suggests  that  none  of  them  is  accurate.  This  is  doubt- 
less true;  but  it  is  still  possible  that  nearer  approach  to  accuracy 
can  be  secured  with  such  a  rule  than  with  none.  It  would  seem, 
however,  that  no  one  rule  can  be  devised  which  will  apply  with  equal 
accuracy  under  all  conditions.  It  is  probable,  for  example,  that 
different  rules  should  be  applied  in  the  case  of  business  and  of  res- 
idence property. 

The  determination  of  the  corner  influence  presents  a  difficult 
problem,  and  it  is  chiefly  in  this  connection  that  the  secret  formulae 
of  the  Somers  System  are  supposed  to  be  valuable.  In  general,  it  may 
be  said  that  within  a  certain  distance  of  the  corner  the  value  of  each 
section  of  each  strip  is  affected  by  two  frontages,  and  these  two  influ- 
ences must  in  some  way  be  combined. 

No  doubt  any  mechanical  system  of  this  sort  has  its  defects. 
The  Somers  System  has  been  subjected  to  severe  adverse  criticism; 
but  it  seems  to  be  generally  admitted  that  some  of  the  underlying 
principles  are  of  considerable  utility,  though  it  is  denied  that  they 
are  peculiar  to  the  Somers  System.  It  must  be  remembered,  more- 
over, that  whatever  may  be  the  faults  of  a  mechanical  system,  the 
alternative  requires  the  exercise  of  judgment  in  a  matter  in  which 
there  is  much  difference  of  opinion,  but  no  certain  knowledge.  To 
say  just  how  far  mechanical  principles,  such  as  those  that  have  just 
been  considered,  are  used  by  the  county  assessors  of  Washington 
would  require  a  more  minute  study  of  actual  methods  than  the  author 


56  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

has  had  the  opportunity  to  make.  It  appears,  however,  that  they 
are  used  in  some  of  the  largest  counties. 

Whether  or  not  a  mechanical  system  is  used,  the  assessor  is  not, 
as  a  rule,  entirely  dependent  on  his  own  resources.  In  some  cases 
substantial  assistance  is  given  by  individual  citizens  or  by  associa- 
tions that  are  in  a  good  position  to  perform  such  services.  In  1908, 
for  example,  the  Seattle  Real  Estate  Association,  co-operating  with 
the  assessor,  furnished  an  appraisal  of  land  values  in  the  city  which 
has  served  as  a  basis  for  subsequent  biennial  assessments.  The  re- 
sult according  to  Assessor  A.  E.  Parish  is  "that  substantial  difficul- 
ties no  longer  attend  the  assessment  of  Seattle  realty."^ 

The  adoption  of  such  a  method  as  this  implies,  of  course,  that 
a  considerable  part  of  the  work  of  assessment  is  done  by  persons 
not  connected  with  the  assessor's  office.  Under  proper  circumstances 
this  is  entirely  legitimate.*  So  far,  according  to  Mr.  Parish,  re- 
adjustments in  the  original  appraisal  have  been  readily  made.  It 
would  seem,  however,  that  ordinarily  it  would  be  necessary  to  call 
upon  outside  help  at  more  or  less  frequent  intervals.  Possibly  some 
system  could  be  devised  under  which  it  would  be  possible  to  get  help 
of  this  sort  whenever  needed,  and  to  rely  very  largely  on  it. 

§4.  The  problems  with  which  the  assessor  must  deal  in  de- 
termining the  value  of  rural  lands  differ  somewhat  from  those  with 
which  he  is  confronted  in  the  cities  and  towns.  Location  is  still 
of  importance,  but  there  are  a  number  of  other  considerations  which 
are  either  absent  or  of  less  significance  under  urban  conditions.  The 
character  of  the  soil  and  the  extent  to  which  it  has  been  cleared 
must  receive  a  large  share  of  his  attention.  Even  the  purpose  for 
which  the  land  is  used  is  commonly  taken  into  account,  the  value  of 
the  crop  at  the  time  the  assessment  is  made  being  generally  included 
as  a  part  of  the  value  of  the  land.  Land  planted  with  alfalfa,  for 
example,  may  be  assessed  at  $250  an  acre,  land  in  grain  at  $175, 
and  pasture  land  at  $125.  The  assessed  value  of  orchard  land  is 
high  because  of  the  trees  growing  upon  it. 

As  in  the  case  of  urban  land,  so  in  the  case  of  rural,  the  methods 
of  assessment  are  sometimes  crude  in  character,  and  almost  certainly 

'"Administration  of  the  General  Property  Tax,"  Taxation  in  Washing- 
ton,   p.    26. 

'The  Prussian  Gewerbesteuer,  or  business  tax,  furnishes  a  good  ex- 
ample of  the  systematic  use  of  associations  of  taxpayers  in  the  assess- 
ment of  the  tax.  The  system  is  worked  out  with  true  German  thorough- 
ness. For  an  account  of  it  see  J.  A.  Hill,  "The  Prussian  Business  Tax," 
Quarterly  Journal  of  Economics,  Vol.  VIII,  pp.  77  ff.  This  article  is 
reproduced,  in  part,  in  C.  J.  Bullock's  "Selected  Readings  in  Public  Fi- 
nance,"   pp.    328-336. 


THE  GENERAL  PROPERTY  TAX  57 

very  imperfect  in  results.  The  assessor  of  one  such  county  states 
that  it  is  practically  impossible  to  ascertain  the  amount  of  land  of 
a  particular  kind.  "It  is  impossible  for  the  deputy  to  go  out  and 
measure  a  field,  or  even  approximate  the  acreage  with  any  degree  of 
accuracy,  as  there  may  be  several  fields,  and  in  such  irregular 
shapes  that  they  are  hard  to  even  guess  at  the  extent  of  them."  As 
to  valuation,  the  same  assessor  remarks,  "about  all  the  guide  we  have 
to  go  by  is  such  sales  as  have  been  made,  the  price  being  usually 
hearsay."  "As  a  matter  of  fact  land  values  in  this  western  part 
of  the  State  are  to  a  very  great  extent  simply  a  matter  of  opinion." 
In  some  of  the  counties,  however,  the  attempt  has  been  made 
to  develop  a  scientific  system  of  assessment.'^  For  this  purpose  the 
land  is  divided  into  units,  commonly  of  forty  acres.  Maps  are  pre- 
pared showing  the  ownership  of  all  the  farming  land  in  the  county, 
the  character  and  quality  of  the  soil,  and  any  special  advantages 
or  disadvantages,  such  as  roads  and  watercourses.  The  land  is  classi- 
fied and  graded,  there  being  in  some  cases  as  many  as  ten  different 
classes  and  as  many  grades.  The  systems  used  in  the  diflferent 
counties  are  not  uniform.  From  some  points  of  view  this  is  un- 
fortunate ;  but  it  at  least  leaves  the  way  open  for  experiment  with 
different  systems,  and  allows  each  county  to  adopt  one  specially 
suited  to  its  needs  or  its  willingness  to  bear  the  initial  expense  which 
the  adoption  of  such  a  system  implies.  It  would  be  well,  however 
if  a  really  scientific  system  could  be  worked  out  for  the  whole  State. 
Possibly  it  might  be  so  arranged  that  counties  in  which  conditions 
are  comparatively  simple  could  adopt  a  part  of  the  system  at  first, 
adding  other  features  as  they  developed. 

The  initial  cost  of  grading  and  classification  has  doubtless  been 
one  of  the  chief  reasons  why  some  system  has  not  been  more  gen- 
erally adopted.  It  must  be  remembered,  however,  that  the  cost  ap- 
pears to  be  somewhat  greater  than  it  really  is,  because  it  falls 
chiefly  upon  the  year  in  which  the  system  is  first  put  into  effect.  Ac- 
cording to  the  testimony  of  assessors  of  counties  in  which  the  work 
has  been  done,  the  cost  of  keeping  the  system  up  to  date  is  small,  as 
it  is  unnecessary  to  use  a  large  number  of  deputies  in  the  making 
of  each  biennial  assessment. 

"Yakima  and  Douglas  Counties,  for  example,  make  use  of  systems 
of  this  sort.  In  Spokane  County  what  appears  to  have  been  a  very  good 
system  was  put  into  effect  by  Assessor  E.  P.  Galbraitli,  but,  unfortu- 
nately its  use  seems  to  have  been  greatly  impaired  by  the  adoption  of 
townsliip    assessment. 


58  THE  STATE  TAX  SYSTEM  OP  WASHINGTON 

The  question,  however,  is  not  merely  one  of  cost.  The  great 
advantage  lies  in  the  relative  accuracy  and  equality  of  assessment. 
Where  no  such  system  is  adopted  each  parcel  of  land  presents  a 
difficult  problem  in  itself,  and  where  an}-^  attempt  is  made  to  com- 
pare different  parcels  it  is  comparatively  easy  to  show  that  cir- 
cumstances and  conditions  are  substantially  dissimilar.  A  system 
of  classification  and  grading  at  least  makes  it  possible  to  consider 
separately  each  of  the  different  factors  on  which  value  depends,  and 
thus   goes    far   towards   the    simplification   of   the   problem. 

It  is  not,  of  course,  to  be  expected  that  any  such  system  can 
be  entirely  satisfactory,  but  there  is  little  reason  to  doubt  that  it 
constitutes  a  great  improvement  on  the  haphazard  method ;  and  it 
is  to  be  expected  that  with  the  accumulation  of  experience  a  nearer 
approach  to  perfection  can  be  attained. 

§5.  In  the  assessment  of  permanent  improvements,  such  as 
buildings,  similar  attempts  at  the  establishment  of  a  scientific  sys- 
tem have  been  made.  In  some  counties  a  card  catalog  is  kept  showing 
the  character  of  all  buildings  within  the  county,  or  at  least  within 
a  city.,  Upon  these  cards  may  be  entered  such  details  as  size,  ma- 
terials, mode  of  construction,  date  of  erection,  original  cost,  deprecia- 
tion, and  pres.ent  value.  Where  such  a  system  is  adopted  the  amount 
of  work  necessary  in  connection  with  the  biennial  assessment  is  great- 
ly  reduced,   since   only   changes   need  be  noted. 

The  assessment  of  buildings  presents,  however,  some  serious 
difficulties  that  are  either  absent  or  of  less  importance  in  the  case 
of  land.  It  is  doubtless  an  advantage  that  the  original  cost  can  be 
ascertained  or  the  cost  of  production  new  estimated.  Against  this 
must  be  set  the  problem  of  depreciation.  This  is,  of  course,  im- 
portant in  the  case  of  certain  kinds  of  land,  but  such  cases  are  com- 
paratively few,  and  depreciation  is  nearly  always  a  big  element  in 
the  case  of  a  building.  So  far  as  what  may  be  called  structural  de- 
preciation is  concerned,  much  may  be  accomplished  by  the  use  of 
established  scales  of  depreciation,  supplemented  by  observation. 
There  are,  however,  many  other  influences  bearing  upon  depreciation. 
Changes  in  the  prevailing  style  of  buildings,  whether  for  business  or 
for  residential  purposes,  have  a  very  material  effect  on  value.  The 
growth  of  a  city  may  render  a  building  unsuitable  for  the  best  use 
of  the  site  on  which  it  stands.  It  not  infrequently  happens  that 
a  building,  still  good  from  a  structural  point  of  view,  is  torn  down 
to  make  way  for  a  building  better  suited  to  the  locality.     In  such  a 


THE  GENERAL  PROPERTY  TAX  59 

case  the  building,  no  matter  how  good  it  might  be  if  it  were  different- 
ly located,  is  worth  no  more  than  its  salvage  value. 

Notwithstanding  all  difficulties,  however,  it  is  probable  that, 
aside  from  land,  there  are  very  few  forms  of  wealth  that  are  easier 
to  assess  than  are  buildings.  It  would  seem  that  it  is  possible,  in 
many  cases,  to  place  the  burden  of  proof  as  to  special  depreciation 
upon  the  owner,  forcing  him  to  accept  the  assessor's  estimate  or  to 
present  reliable  evidence  as  to  the  amount  of  depreciation,  even 
though  that  makes  it  necessary  for  him  to  bring  forward  facts  that  he 
would  regard  as  too  private  a  matter  to  be  disclosed  to  the  assessor 
in  any  ordinary  discussion  as  to  the  value  of  his  property. 

§6.  The  system  of  careful  surveys,  followed  by  the  mainte- 
nance of  records  that  need  only  to  be  corrected  to  meet  changed 
conditions  has  been  more  widely  applied  in  the  case  of  timber  lands 
than  in  that  of  any  other  form  of  property.  When  the  State  Board 
of  Tax  Commissioners  was  organized  in  1905  it  'found  that  the  as- 
sessment of  forests  was  largely  a  matter  of  guess-work.  Since  that 
time  timber  cruises  have  been  made  in  practically  all  the  timbered 
counties  of  the  State. 

The  first  of  these  cruises  was  completed  in  King  County  in 
1908.  Its  character  and  effect  are  thus  described  by  the  assessor 
under  whose  direction  it  was  made®: 

"To  determine  the  true  value  of  timber  and  timber  lands  in 
King  County  *  *  *  an  official  cruise  was  inaugurated  in  1907 
and  completed  in  1908,  in  which  some  twenty  expert  cruisers,  with 
capable  assistants,  were  employed  under  the  general  direction  and 
supervision  of  one  of  the  ablest  timber  cruisers  of  the  West.  Every 
timbered  section  in  the  county  was  carefully  cruised,  and  detailed 
reports  made  upon  each  separate  ten-acre  tract,  showing  not  only  the 
kind,  nature,  quantity  and  quality  of  all  timber  and  its  accessibility 
for  logging  purposes,  but  the  character  and  adaptability  of  the  soil 
and  the  general  topography  of  the  county.  These  reports,  as  re- 
ceived from  the  field  cruisers,  were  transcribed  by  office  draughtsmen 
in  India  ink,  photographed  upon  linen,  bound  in  separate  volumes 
by  townships,  and  now  form  part  of  the  permanent  records  of  the 
assessor's  office,  from  which  absolutely  correct  assessments  may  be 
made  for  all  future  time,  after  due  allowance  for  recorded  logging 
operations. 

"The  cost  of  said  cruise  was  slightly  less  than  $70,000,  and  it 
resulted  in  an  increased  valuation  of  the  timber  lands  of  the  county 

•T.    A.    Parish,    "Assessors    and    Assessments,"     3    National    Tax    Asso- 
ciation,   pp.    335    and    336. 


60  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

of  over  $12,000,000,  and  in  additional  revenue  to  the  county  there- 
from, for  the  year  1907  alone,  largely  in  excess  of  the  expenditure 
for  the  entire  cruise." 

There  is  little  reason  to  doubt  that  the  effect  of  the  timber 
cruises  has  been  to  make  the  law^  more  effective,  and  to  collect  a 
large  amount  of  revenue  that  would  not  otherwise  have  been  obtained. 
Another  result,  however,  has  been  to  raise  grave  doubt  as  to  the 
wisdom  of  the  general  property  tax  as  applied  to  forests.  Com- 
missioner Rockwell,  while  admitting  that  the  cruises  have  been  of 
great  value,  says':  "We  think  we  have  come  as  nearly  as  possible 
to  equality  as  can  be  expected  under  our  present  system,  but  the  er- 
rors have  been  so  glaring  that  it  would  be  foolish  for  any  one  to 
argue   that   uniformity    and    equality    have   been   obtained." 

There  are,  however,  other  strong  arguments  against  the  appli- 
cation of  the  general  property  tax  to  forests,  and  these  will  be  con- 
sidered in  their  proper  place. ^  Here  it  need  only  be  noticed  that 
those  who  advocate  a  change  do  not,  as  a  rule,  contend  that  the 
owners  of  the  forests  should  pay  less  taxes  than  the  holders  of  other 
forms  of  real  estate  of  the  same  value.  It  is  the  method,  rather  than 
the  amount  of  taxation  to  which  objection  is  made. 

§7.  There  is,  perhaps,  no  form  of  real  property  more  difficult 
to  assess  than  mines.  The  mineral,  to  which  the  property  owes  its 
value,  lies  mostly  under  ground.  The  value  of  the  mine  depends 
not  only  upon  the  amount  of  mineral,  but  upon  the  rate  at  which  it 
is  taken  out,  the  cost  of  the  process,  and  the  price  at  which  it  can 
be  sold.  As  has  already  been  pointed  out,  the  price  at  which  real 
property  is  bought  or  sold  does  not  afford  the  assessor  a  sufficient  in- 
dication of  its  value.  In  this  case  there  is  the  additional  difficulty 
that  the  value,  as  judged  by  this  method,  is  largely  speculative.  Spec- 
ulative value,  while  it  might  from  one  point  of  view  be  regarded  as 
satisfying  the  letter  of  the  law,  does  not  furnish  a  good  criterion 
of  ability  to  pay  taxes;  and,  in  the  opinion  of  the  taxing  officials, 
purely  speculative  value  should  not  be  considered. 

In  dealing  with  mines  a  distinction  must  be  made  between 
those  that  are  operating  and  those  that  are  not ;  and  each  of  these 
may  be  divided  into  subclasses.  It  is  claimed  by  some  who  are  in  a 
position  to  speak  with  authority  that  the  value  of  the  former  can 
often  be  ascertained  with  a  reasonable  degree  of  accuracy.     In  some 

'4    Tax    Commissioners,    pp.    14    and    15. 
8See   below,    p.    120. 


THE  GENERAL  PROPERTY  TAX  61 

States,  as  for  example  in  Michigan,  high  grade  engineering  experts 
have  been  employed  for  the  purpose.  In  Washington  work  is  now 
being  done  on  the  classification  of  coal  lands,  which  are  the  most 
important  mineral  properties  in  the  State,  somewhat  along  the  lines 
adopted  in  the  case  of  the  timber  cruises.  Work  of  this  sort  is  ex- 
pensive if  well  done,  but  it  will  probably  prove  to  be  worth  all  it 
costs  if  the  attempt  to  tax  such  property  in  tlie  same  way  as  other 
real  property  is  continued. 

In  practice,  under  the  conditions  prevailing  in  the  State,  a  great 
deal  of  reliance  is  placed  upon  data  furnished  by  the  operators  of 
the  mining  properties  concerned,  supplemented  by  data  secured  from 
other  sources.  In  some  cases  the  operators  seem  to  have  co-operated 
with  the  assessors  in  a  substantial  way.  One  assessor  testifies  that 
they  no  longer  fear  to  place  their  books,  reports,  and  other  more  or 
less  private  information  at  his  disposal.  He  then  bases  his  esti- 
mate of  value  very  largely  on  net  smelter  returns,  though  taking 
into  account  also  offers  or  refusals  of  sale." 

When  the  operators  co-operate  in  good  faith  with  the  assessors 
it  would  seem  that  the  value  of  the  property  could  be  ascertained 
with  a  reasonable  approach  to  accuracy.  The  success  of  the  method 
is  largely  dependent,  however,  on  the  willingness  of  the  taxpayers  to 
give  their  assistance.  W^ithout  in  any  way  questioning  the  good 
faith  of  those  who  have  already  shown  such  willingness,  it  cannot 
be  ignored  that  access  to  the  books  of  the  producers  will  not  neces- 
sarily result  in  a  fair  valuation.  Commissioners  entrusted  with  the 
regulation  of  the  rates  charged  by  the  public  utilities  have  found 
how  difficult  it  is,  in  the  absence  of  prescribed  methods  of  account- 
ing, to  ascertain  the  facts  in  regard  to  the  properties  over  which 
they  have  supervision ;  and  while  the  problems  of  the  assessors  may 
not  be  quite  as  great,  they  will  probably  be  found  serious  enough 
to  greatly  impair  the  utility  of  this  method. 

The  assessment  of  non-producing  mines  is  even  more  difficult. 
W^here  they  are  associated  with  mines  that  are  being  operated,  the 
valuation  of  the  former  may  be  based,  to  some  extent,  on  that  of  the 
latter,  though  this  can  hardly  be  regarded  as  satisfactory.  In  some 
cases  the  assessment  of  non-producing  mines  is  little,  if  any,  better 
than  guess-work.  As  the  assessor  last  quoted  remarks^*^:  "We  some- 
times take  a  long  shot  with  all  the  general   and  special   information 

»F.  B.  Wilson,  16  County  Assessors,  p.   52. 
"Loc.    cit.,    p.    53. 


62  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

that  we  are  able  to  get,  taking  care  that  the  valuation  placed  is  well 
within  the  limit.  We  seldom  do  this  work  arbitrarily  if  it  is  pos- 
sible to  confer  with  the  owners  or  managers."  The  method  adopted, 
as  described  by  another  assessor,  is  to  "consult  men  who  are  fair 
and  unprejudiced,  considered  competent  and  familiar  with  local  con- 
ditions as  well  as  the  property  in  question. "^'^  How  many  such  men 
he  is   able  to   find  he  does   not  say. 

It  is  sometimes  said  by  those  interested  in  mineral  properties 
that  a  mine  that  is  producing  nothing  has  no  value  for  the  purpose 
of  taxation,  and  should  be  assessed  only  at  the  value  of  the  surface 
land.  This  is,  perhaps,  an  extreme  view;  but  there  are  many  who 
hold  that  the  assessment  of  such  property  should  be  very  low.  It 
must  be  remembered,  however,  that  the  general  property  tax  is  not 
supposed  to  be  a  tax  on  income  or  on  product.  Under  it  property 
that  has  value  should  be  taxed,  regardless  of  whether  it  be  produc- 
tive property  or  not. 

§8.  It  would,  of  course,  be  impossible  to  consider  all  kinds  of 
real  property  in  a  work  of  this  sort,  or  even  to  consider  any  of 
them  fully.  Some  attention  has  now  been  given  to  those  that  are 
of  greatest  importance  as  regards  the  amount  of  revenue  received 
and  the  extent  of  the  interests  affected.  A  few  words  may  be 
added  by  way  of  summary. 

Real  estate  is  usually  easy  to  find  but  the  determination  of  its 
value  is  difficult.  Complete  accuracy  is  hardly  to  be  expected,  a  re- 
mark which  might  be  made  of  assessment  under  almost  any  form 
of  taxation.  With  the  aid  of  scientific  methods  much  may  be  ac- 
complished in  the  direction  of  securing  a  substantially  just  assess- 
ment. Such  methods  involve  a  considerable  initial  expense.  Care- 
ful surveys  must  be  made,  and  the  results  must  be  embodied  in  more 
or  less  elaborate  records,  which  must  be  kept  up  to  date.  Property 
must  be  classified,  and  the  factors  that  enter  into  the  value  of  each 
class  must  be  carefully  considered.  Substantial  progress  in  this  direc- 
tion has  already  been  made  in  Washington,  but  much  remains  to 
be  done. 

There  are,  however,  certain  forms  of  real  estate  in  regard  to 
which  there  is  serious  question  as  to  the  possibility  of  the  successful 
application  of  the  general  property  tax.  Such  is  the  case  with 
mines  and  forests.  As  regards  the  latter  there  are  other  reasons 
than  the  difficulty  of  assessment  for  holding  that  special  methods  of 

"LeRoy  Marbelle,   "Mine  Taxation,"    12   County  Assessors,   p.   20. 


THE  GENERAL  PROPERTY  TAX  63 

taxation  should  be  used.  Substantial  justice  in  assessment,  it  must 
be  remembered,  does  not  necessarily  imply  substantial  justice  in 
taxation.  Consideration  of  the  underlying  principles  of  the  general 
property  tax,  however,  is,  for  the  present,  postponed. 

§9.  Turning  from  real  to  personal  property  the  difficulties  of 
assessment  are  greatly  increased.  Personal  property  is  of  many 
kinds,  some  of  which  are  very  hard  to  find  and  some  very  difficult 
to  value  when  found.  That  much  personal  property  escapes  taxa- 
tion is  generally  admitted  by  the  assessors  themselves.  Were  they 
to  deny  it  the  statistics  showing  the  results  of  the  assessment  would 
establish  a  strong  presumption  against  them.  In  191 1,  for  example, 
the  total  assessed  value  of  all  property  in  the  State,  exclusive  of 
the  operating  property  of  railroad  and  telegraph  companies  so  far  as 
these  are  assessed  by  the  State  Board  of  Tax  Commissioners,  as 
equalized  by  the  county  boards,  was  $898,842,t48.  Of  this  but  $156,- 
703,671,  or  about  17.4  per  cent,  was  personalty.^-  No  allowance  is 
here  made  for  exemptions,  although  it  is  possible  that  some  property 
was  ignored  because  it  would  have  been  exempt  in  any  event.  If 
only  taxable  property  is  considered,  personalty  constitutes  about 
14.3  per  cent  of  the  total. ^^  Just  what  proportion  of  the  property 
in  the  State  is,  in  truth,  personalty  it  is  impossible  to  say,  but  even 
when  allowance  is  made  for  the  fact  that  most  forms  of  "intangi- 
bles" are  not  property  for  the  purpose  of  taxation  it  seems  incred- 
ible that  these  figures  can  be  correct. 

§10.  The  statement  that  the  assessment  of  personal  property 
is  a  failure  does  not,  of  course,  apply  equally  to  all  classes  of  such 
property.  Live  stock,  for  example,  can  generally  be  found  and, 
upon  the  whole,  is  relatively  easy  to  assess.  In  1914  the  total  value 
of  live  stock,  including  poultry,  as  equalized  by  the  county  boards, 
was  $20,239,665,"  or  about  12.9  per  cent  of  the  total  personalty. 
The  variation  in  average  value  between  different  counties,  however, 
is  remarkable.  The  average  value  of  work  horses,  for  example, 
varied  from  $22.62  in  Klickitat  County  to  $73.60  in  Ferry  County, 
the  average  for  the  State  being  $48.70.'=^ 

§11.  A  sort  of  property  that  has  given  the  assessors  a  great 
deal  of  trouble  is  merchants'  stock  in  trade.      In   1914  the  value  of 

"Computed    from    the    flgureg    given    In    the    Proceedings    of    the    State 
Board   of   Equalization.    1914,    pp.    27    and    32. 

"Loc.    cit.,    p.    SS. 

"Loc.  cit.,  pp.  14-lS. 

"Loc.    cit.,    p.    15. 


64  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

"goods  and  merchandise,  including  fixtures  and  appliances  used  in 
business,"  as  equalized  by  the  count}'^  boards,  was  $31,546,850,^*  or 
about  20.1  per  cent  of  the  total  personalty.  At  one  time  a  great 
deal  of  reliance  seems  to  have  been  placed  on  the  simple  declara- 
tions of  the  taxpayers;  but  in  some  of  the  counties  at  least  this  has 
been  abandoned.  As  T.  A.  Parish,  a  former  assessor  of  King  County, 
remarks,  "for  some  inexplicable  reason  most  merchants  had  acquired 
the  habit,  to  which  they  clung  most  tenaciously,  of  returning  valua- 
tions upon  their  stocks  at  the  same  amount  at  which  they  had  been 
assessed  in  the  preceding  year,  notwithstanding  the  fact  that  their 
business  had  increased  and  their  stocks  multiplied  over  and  over 
again  in  value  since  the  original  assessment."^'^ 

Some  of  the  assessors  claim  to  have  secured  good  results  by 
sending  out  deputies  especially  familiar  with  the  business  they  are 
employed  to  assess.  It  would  seem  strange,  however,  if  a  man,  paid 
at  the  rate  of  $3.50  a  day  or  less,  could  visit  a  store  or  warehouse 
and  correctly  estimate  the  value  of  the  goods  it  contained.  The  meth- 
od was  tried  in  King  County,  but  the  results  were  not  satisfactory. 
The  taking  of  actual  inventories  by  the  deputies  was,  of  course,  out 
of  the  question.  Finally,  in  1908,  the  assessor  asked  the  merchants 
to  permit  him  to  examine  their  books  of  records  and  accounts  and 
their  own  inventories.  As  might  be  expected,  this  plan  at  first  met 
with  unanimous  resistance;  but  finally  most  of  the  merchants  con- 
sented. Upon  the  property  of  those  who  refused  to  make  a  full 
disclosure  the  assessor  placed  an  arbitrary  valuation  sufficiently  high 
to  protect  those  who  were  co-operating  with  him ;  and  the  county 
board  of  equalization  refused  to  grant  relief  unless  the  complaining 
merchants  were  able  to  prove  substantial  injury  by  submitting  their 
records  to  the  inspection  of  the   full  membership  of  the  board. ^^ 

The  same  methods  have  been  adopted  in  a  number  of  other 
counties  and  seem  to  be  regarded  by  the  assessors  using  them  as 
satisfactory.  It  must  be  remembered,  however,  as  has  already  been 
suggested  in  connection  with  the  use  of  similar  methods  in  the  valua- 
tion of  mining  property,  that  accounts  may  be  kept  in  such  a  way 
as  to  fail  to  disclose  the  facts  of  the  case.  Indeed,  the  problem  of 
the  valuation  of  stock  in  trade  is  a  complicated  one,  and  different 
methods  of  accounting  are  commonly  used  by  different  concerns  where 

"Loc.  cit.,  p.  24. 

""Assessors   and   Assessments,"   3   National   Tax  Association,   p.    338. 

"Loc.   cit. 


THE  GENERAL.  PROPERTY  TAX  65 

there  is  no  intent  to  deceive.  In  the  absence  of  uniform  methods 
of  accounting  it  would  seem  that  some  inequalities  must  arise.  It 
would  be  difficult,  however,  to  find  a  method  that  is  likely  to  pro- 
duce a  nearer  approach  to  equality,  especially  if  the  figures  are  so 
presented  that  the  assessor  is  able  to  analyze  them. 

Unfortunately,  however,  this  method  cannot  be  applied  in  all 
cases.  To  say  nothing  of  the  possibility  of  keeping  accounts  in 
such  a  way  as  to  mislead  the  assessor,  there  are  many  concerns  that 
fail  to  keep  any  adequate  accounts,  even  for  their  own  purposes ;  and 
these  are  sometimes  concerns  doing  a  considerable  amount  of  busi- 
ness. In  King  County  the  attempt  is  made  to  deal  with  them  by 
employing  expert  deputies,  but  the  maximum  payment  of  $3.50  a  day 
has  proved  to  be  a  severe  handicap.^** 

There  is  another  difficulty  of  a  somewhat  different  sort.  It  is 
often  possible  for  a  merchant  to  allow  his  stock  to  become  very  low 
at  the  time  of  assessment.  Canned  salmon,  for  example,  have  ordi- 
narily left  the  State  by  March  1st.  An  interesting  exception  oc- 
curred in  1908  when,  partly  on  account  of  the  industrial  depression 
there  was  a  considerable  amount  of  canned  salmon  in  the  State  at 
that  time.  The  merchants  tried  to  induce  the  assessor  to  pass  them 
by,  but  he  refused  to  do  so.-° 

§12.  Another  form  of  personal  property  that  has  been  a  source 
of  some  difficulty  is  manufacturing  plants.  Here  the  most  important 
item  appearing  in  the  published  statistics  is  "manufacturers"  tools, 
implements  and  machinery,  including  engines  and  boilers."  In  1911- 
the  total  amount  of  property  of  this  sort,  as  equalized  by  the  county 
boards,  was  $11,555,963,-^  or  about  7.1  per  cent  of  the  total  per- 
sonalty. Problems  of  much  the  same  sort  arise,  of  course,  in  connec- 
tion with  the  machinery  owned  by  other  than  manufacturing  con- 
cerns. 

Here,  as  in  other  cases,  it  is  of  course  impracticable  for  the 
assessors  to  make  much  of  an  inspection  of  the  property.  In  some 
cases  they  are  able  to  make  use  of  documents  furnished  by  the  manu- 
facturers themselves.  The  owners  of  mills  and  factories,  especially 
the  larger  ones,  commonly  have  appraisals  made  for  their  own  pur- 
poses ;  and  these  appraisals  are  sometimes  used  in  determining  the 
value  of  the  property  for  purposes  of  taxation. 

"A.    E    .Parish,    "Equality   and    Uniformity    of    Assessments,"    12    County 
Assessors,    p.    40. 

"T.  A.  Parish,  "Assessors  and  Assessments,"  Loc.  lit.,  p.  338. 
"Proceedings    of    the    State    Board    of    Equalization,    1914,    p.    24. 


66  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

In  other  cases  the  amount  of  insurance  carried  is  taken  as  a 
guide.  This  is  regarded  by  some  of  the  assessors  as  fairly  reliable 
since  the  insurance  companies  will  not  permit  over-insurance.  There 
is,  however,  nothing  to  prevent  under-insurance ;  and  many  business 
men  fail  to  carry  as  much  insurance  as  they  might.  If  the  amount 
of  insurance  carried  is  the  best  indication  available  to  the  assessors 
of  the  value  of  property  of  this  sort,  very  serious  questions  might  be 
raised  as  to  the  utility  of  other  methods  of  assessment.  Doubtless, 
however,  the  cases  in  which  insurance  is  the  only  guide  are  compara- 
tively few. 

Apparently  the  method  most  commonly  used  is  to  base  values 
upon  cost.  This  introduces  the  very  serious  problem  of  deprecia- 
tion; and  in  the  opinion  of  the  State  Board  of  Tax  Commissioners 
is  likely  to  mean  that  the  assessment  is  made  by  the  officials  of 
the  company  concerned.  "The  owner  or  manager,"  they  say,  "will 
be  ready  to  show  a  great  depreciation  from  first  cost  until,  at  the 
end  of  a  few  years,  such  properties  are  assessed  at  a  very  nominal 
figure,   even  though  earning  returns   on  a  much  higher  valuation. "^^ 

Doubtless  all  of  these  methods  may  be  combined  and  used  to- 
gether, but  it  will  be  seen  that  the  assessor  who  can  properly  com- 
bine them  must  be  an  expert  of  a  fairly  high  grade. 

§  1 3.  The  assessment  of  banks  is  fairly  easy ;  but  this  is  because 
the  law  itself  makes  unnecessary  the  listing  and  valuation  of  all  per- 
sonal property  held  by  them.  It  is  provided  that  they,  or,  more  exactly, 
their  shareholders,  shall  be  taxed  on  the  true  value  of  their  stock, 
less  the  assessed  value  of  the  real  estate  belonging  to  the  bank.  In 
the  case  of  foreign  banks  the  assessment  is  based  on  the  "general 
average  of  money  used  as  exhibited  by  daily  or  monthly  balance 
sheets  during  the  year  preceding  the  time  of  rendering  such  tax 
lists  to  the  assessor."  A  somewhat  similar  method  is  used  in  the 
assessment  of  building  and  loan  associations.  In  1914  the  assessed 
value  of  the  capital  stock  of  incorporated  banks  was  $12,884,572,^^ 
or  about  8.2  per  cent  of  the  total  personalty. 

It  will  be  noticed  that  while  assessment  is  thus  made  compara- 
tively simple,  the  method  is  radically  different  from  that  applied  to 
other  forms  of  personal  property.  Other  corporations  are  not  taxed 
simply  on  the  value  of  their  stock,  either  with  or  without  a  deduc- 
tion  of   the   assessed   value   of   real  estate.      Nor   is   the   result  that 

"5   Tax  Commissioners,   p.    16. 

^^Proceedings  of  the  State  Board  of  Equalization   (1914),  p.   24. 


THE  GENERAL  PROPERTY  TAX  67 

the  banks  are  taxed  according  to  the  value  of  their  property,  using 
the  term  "property"  in  the  same  sense  as  that  in  which  it  is  used 
in  other  cases.  In  attempting  to  ascertain  the  value  the  assessors 
very  commonly  take  simply  the  book  value;  that  is,  the  sum  of  the 
capital,  surplus,  and  undivided  profits,  and  this  method  has  the  ap- 
proval of  the  Tax  Commissioners.  Some  of  the  assessors  insist  that 
true  value  means  market  value,  and  endeavor  to  make  their  assess- 
ments on  that  basis.  Taking  the  law  literally  they  are  doubtless 
correct;  but  when  the  stock  seldom  comes  on  the  market  this  method 
presents  serious  difficulties.  Both  methods  represent  a  departure 
from  the  principles  of  the  general  property  tax,  particularly  in  a  state 
in  which  stock  is  ordinarily  exempt.  Book  value,  however,  represents 
the  value  of  the  capital  owned  by  the  bank  and  used  in  the  business. 
Market  value  includes  good  will,  which  in  the  case  of  mercantile  and 
manufacturing  concerns  is  not  assessed. 

Special  treatment  of  banks  is  not  unusual  in  States  making 
use  of  the  general  property  tax,  and  is  due  in  part,  no  doubt,  to  the 
regulations  of  the  National  Government  in  regard  to  the  taxation  of 
national  banks.  It  does  not  follow,  of  course,  that  any  injustice  is 
done ;  and  the  banks  do  not,  in  general,  seem  to  regard  themselves  as 
unfairly  treated.  In  fact  the  general  counsel  of  the  American  Bank- 
ers' Association  classes  the  Washington  method  under  the  head  of 
"other  satisfactory  systems,"  though  he  seems  to  prefer  the  New 
York  method  of  a  uniform  tax  on  the  book  value  of  the  stock.-* 

There  is  one  feature  of  our  law,  however,  which  has  been  sub- 
jected to  more  or  less  adverse  criticism.  This  is  the  deduction  of 
the  value  of  real  estate  from  the  value  of  the  stock.  It  is  obvious 
that  it  is  to  the  advantage  of  the  State  that  the  banks  own  as  little 
real  estate  as  possible.  In  the  case  of  some  of  the  banks  in  Seattle, 
and  presumably  the  same  is  true  in  other  parts  of  the  State,  the 
value  of  real  estate  held  exceeds  the  value  of  the  stock ;  and,  as  a 
result  no  tax  on  the  latter  is  collected. -°  It  is  argued  that  this  gives 
an  undue  advantage  to  the  stockholders  of  banks  a  large  part  of 
whose  assets  are  in  the  form  of  real  estate. 

§14.  The  assessment  of  the  most  important  of  the  public  serv- 
ice corporations — railways  and  telegraphs — is,  as  far  as  operating 
property  is  concerned,  in  the  hands  of  the  State  Board  of  Tax  Com- 

"Thomas  B.   Paton,   "State   Taxation   of   Banks,"   7   National   Tax   Asso- 
ciation, p.  319. 

"A.    E.    Parish,    "Administration    of    the    General    Property    Tax,"    Tax- 
ation in  Washington,  p.  31. 


68  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

missioners.  There  are,  however,  a  considerable  number  of  public 
service  corporations  whose  property  is  within  the  jurisdiction  of 
the  county  assessors.  In  1911  the  value  of  the  "property  of  gas, 
electric  light,  power,  water,  telephone  and  other  public  service  con- 
cerns, including  franchises,"  as  equalized  by  the  county  boards,  was 
$15,085,665,"*^  or  about  9.6  per  cent  of  the  total  personalty. 

In  the  assessment  of  property  of  this  sort  considerable  reliance 
is  placed  upon  the  declarations  of  the  companies,  though  it  can  to 
some  extent  be  checked  by  the  investigations  of  the  assessors  and 
some  light  is  thrown  upon  the  subject  by  the  data  secured  by  the 
Public  Service  Commission.  Valuation  for  rate  making  purposes 
and  valuation  for  the  purpose  of  taxation  are  two  different  things 
and  are  properly  so  regarded  by  the  law.'^  Data  collected  for  the 
former  may,  however,  be  of  some  service  to  the  assessor  in  forming 
his  own  estimate  of  value. 

The  declarations  which  the  public  service  companies  are  re- 
quired to  make  are  fairly  elaborate,  including  a  statement  as  to 
the  amount  and  value  of  the  stocks  and  bonds,  and  a  detailed  state- 
ment of  the  amount  and  value  of  physical  property.  The  fran- 
chise itself  is  property  for  the  purpose  of  taxation.  Real,  as  well 
as  personal,  property  must  be  listed.  It  may  be  noted,  in  this 
connection,  that  gas  and  water  mains  and  pipes,  laid  in  streets,  roads, 
and  alleys   are   classed  as   personal  property. 

The  fact  that  the  franchise  is  subject  to  taxation  makes  it  less 
easy  for  the  corporation  to  evade  taxation  on  its  personal  property, 
since  all  value  which  the  assessor  believes  to  exist,  but  cannot  defi- 
nitely locate  can  be  put  under  this  head.  It  is  sometimes  said  that 
the  result  is  to  tax  the  good-will  of  s.uch  companies,  although  this  is 
not  done  in  the  case  of  corporations  or  individuals  engaged  in  a 
private  business.^'*  While  there  is  probably  some  foundation  for 
this  complaint,  it  should  be  noticed  that  good-will  in  the  case  of 
a  public  service  company,  if  it  can  be  regarded  as  existing  at  all, 
is  ordinarily  something  different  from  the  good-will  of  a  private  con- 
cern. Good-will  seems  to  imply  competition,  whereas  a  public  serv- 
ice  corporation   generally   possesses   monopoly   powers.^" 

'•Proceedings  of  the  State  Board   of  Equalization    (1914),   p.    26. 

"See  below,  pp.   80-2. 

=«E.  g.,  C.  J.  Hall  (Tax  Agent  of  the  raciflc  Telephone  and  Telegraph 
Company),  "Valuation  and  Taxation  of  Telephone  Property,"  Proceeding's 
of    the    Sixteenth    Annual    Convention    of    County    Assessors,    p.    66. 

"This  matter  is  more  fully  treated  in  connection  with  the  assessment 
of  railroad  and  telegraph  companies,  p.   83. 


THE  GENERAL  PROPERTY  TAX  69 

Just  how  far  the  assessors  are  successful  in  determining  the 
value  of  this  class  of  property  it  is  difficult  to  say.  The  companies 
themselves  complain  that  they  are  required  to  pay  more  than  their 
fair  share  of  taxes ;  and  it  is  probable  that  they  are  at  least  as 
fully  assessed  as  are  the  owners  of  almost  any  other  form  of  per- 
sonal property.  The  publicity  that  necessarily  attends  their  opera- 
tions gives  the  assessor  a  material  advantage.  On  the  other  hand, 
the  valuation  of  property  of  this  sort  is  a  very  difficult  matter,  as 
the  public  service  commissions  have  found ;  and  it  would  seem  that 
it  should  be  in  the  hands  of  a  well  paid  expert.  In  some  cases  the 
difficulties  are  increased  by  the  fact  that  there  is  no  one  assessing 
authority.  An  electric  company,  for  example,  may  run  a  street  car 
system  and  also  sell  electricity  for  light  and  power.  The  assessment 
of  the  street  car  property  is  in  the  hands  of  the  State  Board  of  Tax 
Commissioners ;  that  of  the  light  and  power  properties  in  the  hands 
of  the  local  assessor.  Some  of  the  public  service  companies  operate 
in  more  than  one  county,  and  consequently  no  one  assessor  has  full 
jurisdiction.  It  would  seem,  therefore,  that  there  is  in  some  cases 
a   "twilight   zone." 

§15.  There  is  one  form  of  business  property  that  should  be 
mentioned,  not  because  of  its  importance,  the  total  value  of  such 
property  in  1914,  as  found  by  the  assessors  and  equalized  by  the 
county  boards  being  only  $888,359,  but  because  it  illustrates  how  in- 
formation in  the  hands  of  the  State  is  sometimes  withheld  from  the 
assessors.  Fish  trap  locations  are  property  for  the  purpose  of  tax- 
ation. In  order  to  hold  such  a  location  a  permit  must  be  secured 
from  the  State  Pish  Commissioner,  and  he  has  information  in  his 
office  which  would  make  the  work  of  assessment  relatively  easy. 
This  information  he  is  forbidden  under  severe  penalties  to  divulge, 
save  for  statistical  purposes.  The  locations  are  known  by  the  num- 
bers on  the  licenses,  and  even  if  no  more  were  done  than  to  use 
the  same  numbers  for  the  same  locations  year  after  year  it  would  be 
a  help  to  the  assessors.  The  numbers,  however,  are  changed  every 
year,  presumably  for  the  convenience  of  the  commissioner  in  keep- 
ing his  books. 

§16.  In  the  assessment  of  many  kinds  of  personal  property  the 
assessor  must  rely  almost  entirely  on  the  taxpayer's  declaration, 
supplemented  by  his  own  judgment.  This  is  true  of  some  kinds  of 
business  property.  It  is  even  more  generally  true  of  property  used 
for  the  comfort  and  convenience  of  the  owner  aAd  his   family.      In 


70  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

many  cases  tlie  deputy  assessor  visits  the  taxpayer's  residence,  though 
he  sometimes  goes  to  his  place  of  business.  It  should  be  sufficiently 
obvious  that  any  careful  inspection  by  the  deputy  is  out  of  the 
question.  Even  if  a  complete  list  of  the  property  were  obtained 
in  this  way  it  would  be  of  doubtful  utility,  for  there  is  still  the 
serious  problem  of  valuation.  The  deputy  can  hardly  be  an  expert 
judge  of  the  value  of  the  thousand  and  one  things  that  are  to  be 
found  in  the  home  of  a  well  to  do  citizen. 

It  is  probably  true  that  outright  dishonesty  on  the  part  of  the 
taxpayer  is  not  as  common  as  is  often  supposed.  The  assessors 
themselves  say  that  only  a  small  proportion  wilfully  make  a  false 
statement.  It  is  often  difficult,  however,  for  the  taxpayer  to  give  a 
complete  list  of  his  property,  especially  when  he  is  not  stimulated 
thereto  by  self  interest.  Regular  inventories  are  not  as  common 
in  the  home  as  they  are  in  the  office.  Commonly  he  has  only  a  very 
general  idea  of  the  value  of  the  various  articles.  He  knows  that  if 
he  were  to  attempt  to  sell  them  he  would  get  comparatively  little  for 
them,  for  they  would  have  to  be  sold  at  second  hand.  He  knows,  too, 
that  values  for  the  purpose  of  taxation  are  commonly  low;  and 
though  he  may  be  willing  to  pay  his  fair  share  of  taxes  he  does 
not  want  to  pay  more.  In  practice  he  is  likely  to  place  a  large 
part  of  the  burden  of  making  the  estimate  on  the  deputy.  If  the 
latter  names  an  amount  which  he  regards  as  in  reason  he  will  often 
approve  it.  In  some  cases — probably  in  more  than  is  generally  real- 
ized— he  will  say  that  the  value  named  is  too  low.  The  deputy, 
however,  is  naturally  unwilling  to  take  an  unfair  advantage  of  the 
man  who  is  trying  to  do  his  full  duty,  by  placing  upon  his  property 
a  higher  valuation  than  would  be  placed  on  that  of  the  man  who 
takes  a  less  public  spirited  attitude.  His  estimate,  therefore,  is 
likely  to  be  conservative. 

There  can,  however,  be  no  doubt  that  many  taxpayers  try  to 
keep  the  assessment  at  as  low  a  point  as  possible.  Often  they  will 
name  an  amount  that  will  bring  their  property  safely  within  the  $300 
exemption;  and  some  of  the  assessors  believe,  on  this  account,  that 
the  law  granting  the  exemption  should  be  repealed.  Upon  the  whole, 
there  is  probably  no  exaggeration  in  the  statement  that  the  taxation 
of  household  goods  "has  always  been  farcical  in  the  extreme. "^° 

If  the  difficulty  were  merely  that  a  considerable  amount  of 
property  of  this  sort  escapes  taxation  the  situation  would  not  be  as 

^''4   Tax   Commissioners,   p.   10. 


THE  GENERAL.  PROPERTY  TAX  71 

bad  as  it  is.  There  is  much  to  be  said  in  favor  of  the  exemption  of 
such  property.  To  say  nothing  of  the  effect  of  evasion  on  public 
morals,  the  fact  is  that  all  property  owners  are  not  equally  affected. 
Here,  as  usual,  it  is  likely  to  be  the  small  property  owner  that  suffers 
most.  His  goods  are  relatively  few  in  number  and  are  of  the  kind 
most  familiar  to  the  deputy.  It  is  much  more  difficult  to  assess  val- 
uable pictures,  rugs,  and  similar  household  articles. 

§17.  While  a  full  discussion  of  the  assessment  of  personal  prop- 
erty is  impossible  in  a  work  of  this  sort,  enough  has  been  said  to 
give  some  idea  of  the  way  in  which  the  assessors  work  and  the  prob- 
lems with  which  they  are  confronted.  Experience  has  shown  that 
assessment  is  not  a  simple  matter  of  receiving  the  sworn  declarations 
of  taxpayers.  Where  reliance  must  be  placed  mainly  on  the  declara- 
tion the  tax  is  generally  a  failure  and  a  bad  one.  In  practice  more 
than  the  declaration  has  been  found  to  be  necessary.  In  some  cases 
"expert"  deputies  must  be  employed.  In  others  books  and  papers 
must  be  examined.  In  the  case  of  some  corporations,  particularly 
the  public  utilities,  assessment  is,  in  reality,  based  largely  on  earning 
power,  this  being  taken  as  the  main  guide  to  the  value  of  the  prop- 
erty. All  these  difficulties  suggest  that,  at  least  as  far  as  personalty 
is  concerned,  the  general  property  tax  fails  to  accomplish  its  pur- 
pose. 

In  any  event  it  should  be  recognized  that  the  assessment  of 
both  real  and  personal  property  is  a  difficult  matter,  requiring  trained 
ability  as  well  as  integrity  on  the  part  of  the  assessor.  If  the  taxa- 
tion of  many  kinds  of  property  is  to  be  continued  the  work  of  assess- 
ment should  be  better  organized ;  and  organized  for  the  State  as  a 
whole.  The  office  of  assessor  should  be  taken  out  of  politics  and 
made  attractive  to  men  with  a  professional  spirit  and  professional 
training. 

§18.  The  work  of  the  assessor  is,  of  course,  subject  to  correc- 
tion by  the  county  and  city  boards  of  equalization.  The  county  board 
is  composed  of  the  county  commissioners,  the  county  treasurer,  and 
the  assessor.  In  cities  of  the  first  and  second  classes  three  council- 
men  are  selected  who,  with  the  county  commissioners,  constitute  the 
board  of  equalization  for  property  within  the  corporate  limits.  These 
boards  have  the  right  to  revise  the  assessment  of  any  parcel  of  land, 
of  any  class  of  personal  property,  or  of  the  property  of  any  individ- 
ual. No  increase,  however,  is  valid  unless  due  notice  is  given  to  the 
taxpayer.      Persons   who    feel    that   they    have   been    unfairly   treated 


72  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

have  a  riglit  to  appear  before  the  board,  or  to  file  complaint  in 
writing. 

While  a  considerable  number  of  changes  are  made  by  these 
boards  of  equalization,  it  is  hardly  to  be  expected  that  they  can 
do  much  to  bring  about  real  equality  in  taxation.  Only  a  compara- 
tively small  portion  of  the  property  assessed  receives  special  atten- 
tion, and  this  chiefly  in  cases  where  complaint  has  been  filed.  Gen- 
erally speaking,  the  other  members  of  the  board  are  not  in  as  good 
a  position  as  is  the  assessor  to  know  the  real  value  of  any  particular 
piece  of  property.  Where  evidence  is  presented  to  them  that  has 
not  been  presented  to  the  assessor  they  can  make  corrections,  and 
in  a  few  cases  they  can  doubtless  discover  serious  errors  affecting 
classes  of  property.  All  this,  however,  is  something  substantially  dif- 
ferent from  bringing  about  uniformity  in  assessments. 

It  does  not  follow  that  the  boards  of  equalization  are  useless. 
The  power  lodged  in  the  assessor  is  so  great  that  some  opportunity 
for  appeal  and  for  review  is  desirable.  Appeals  might,  of  course, 
be  considered  by  the  courts  in  the  first  instance,  but  their  methods 
of  procedure  are  not  the  best  for  the  purpose,  and  the  use  of  boards 
of  equalization  seems  simpler  and  more  convenient.  The  courts  can, 
of  course,  act  only  when  complaint  is  brought  before  them.  It  is 
well  for  the  assessor  to  know  that  the  results  of  his  work  will  come 
under  the  review  of  a  board  specially  organized  for  that  purpose, 
and  that  special  attention  may  be  called  to  details  by  anyone  that  is 
dissatisfied,  without  the  formality  of  court  action  or  the  necessity 
of  presenting  the  sort  of  evidence  that  a  court  requires. 

A  taxpayer  who  thinks  that  he  has  been  unfairly  treated  by 
the  assessor  and  the  board  of  equalization,  may,  of  course,  bring  the 
matter  before  the  courts,  but  he  should  be  very  sure  of  his  ground 
before  he  does  so.  The  courts  are  very  slow  to  interfere  with  the 
valuation  of  property  for  the  purpose  of  taxation.  Ordinarily  they 
are  inclined  to  regard  the  action  of  the  board  of  equalization  as 
final  unless   fraud  or  malice  can  be  shown.^^ 

As  has  already  been  pointed  out,  the  state  board  of  equaliza- 
tion is  not  concerned  with  the  assessment  of  individual  taxpayers,  ex- 
cept  in   the   case   of    railroads    and    telegraph   companies,   which   are 

assessed  by  the  Tax  Commissioners  instead  of  by  the  local  assessors. 

""In  no  case  has  this  court  ever  interfered  with  an  assessment  of 
property  for  purposes  of  taxation  upon  the  sole  ground  of  excessive 
assessment,  in  the  absence  of  a  showing  of  actual  fraud  on  the  part  of 
the  assessing  officers,  where  the  difference  between  the  assessed  value 
and  the  actual  value  was  as  small  as  ten  per  cent." — N.  P.  Ry.  Co.  v.  The 
State  of  Washington,  84   Wash.   510-544. 


Chapter  VI. 

THE  GENERAL  PROPERTY  TAX: 

State  Assessment. 

§1.  The  operating  property  of  railroad  and  telegraph  com- 
panies is  assessed  by  the  State  Board  of  Tax  Commissioners.  The 
terms  used  in  the  law  assigning  them  this  function  are  broadly  de- 
fined. As  railroad  companies  are  classed  all  persons,  associations,  and 
corporations  operating  railroad  stations,  terminals,  or  bridges,  and 
those  operating  street  or  interurban  railways  as  well  as  those  oper- 
ating the  long  distance  lines.  As  telegraph  companies  are  classed 
those  owning  or  operating  cable  or  telegraph  lines  and  engaged  in 
performing  telegraph  service  for  compensation.  Telephone  lines  and 
wireless  telegraph  stations,  however,  are  not  included.  In  all  cases 
it  is  the  operating,  rather  than  the  owning  company  with  which  the 
Commissioners  deal. 

It  must  not  be  inferred  that  state  assessment  implies  any  sep- 
aration of  the  sources  of  state  and  local  revenue.  Taxes  on  the 
operating  property  of  railroad  and  telegraph  companies  are  collected 
in  the  same  manner  as  are  taxes  on  other  kinds  of  property,  save 
only  that  all  the  property  of  street  railway  companies  and  telegraph 
companies  is  regarded  as  personalty.  The  same  rates  are  imposed 
and  the  proceeds  are  divided  between  the  State  and  its  subdivisions 
in  the  same  way.  The  Commissioners  simply  determine  the  value 
of  the  property  within  the  State  and  apportion  it  to  each  county  on 
the  basis  of  mileage.  The  results  are  considered  and,  if  necessary, 
corrected  by  the  State  Board  of  Equalization.  The  value  assigned 
to  each  county  is  then  reduced  so  as  to  make  the  ratio  of  taxable  to 
true  value  conform  to  that  which  is  found  by  the  State  Board  of 
Equalization  to  be  used  by  the  county  authorities  in  the  case  of 
property  locally  assessed.  From  this  point  on  taxes  on  the  property 
of  railroad  and  telegraph  companies  are  treated  in  the  same  way  as 
are  taxes  on  property  of  other  kinds. 

§2.  The  chief  reasons  for  state  assessment  are  to  be  found  in 
the  peculiar  nature  of  the  property  and  its  relation  to  the  locality 
in  which  it  lies.  A  railroad  or  telegraph  company  does  not  ordinarily 
confine  its  business  to  a  single  county.  To  be  sure  the  track  and 
structures  of  a  railroad  company  and  most  of  the  physical  property 

(73) 


74  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

are  definitely  located  in  one  county  or  another;  but  these  are  properly 
regarded  as  parts  of  a  single  property  rather  than  as  individual 
properties  in  themselves.  The  larger  property  includes  some  ele- 
ments which  have  no  definite  location,  such,  for  example,  as  the 
franchise.  The  application  of  the  "unit  rule,"  or  the  assessment  of 
the  property  as  a  whole,  prevents  the  escape  of  these  elements.  If 
the  attempt  were  made  to  split  up  the  property  into  its  parts  and 
to  assess  each  separately  some  of  them  would  be  very  likely  to  be 
overlooked  or  underestimated,  with  the  result  that  the  sum  of  the 
parts  found  would  be  less  than  the  whole. 

In  the  case  of  railroads  there  is  the  additional  difficulty  that 
much  of  the  physical  property  can  easily  be  moved  from  one  place 
to  another.  If  it  were  taxed  in  the  county  in  which  it  happened  to 
be  on  assessment  day  it  is  very  likely  that,  if  found  in  the  State  at 
all,  it  would  be  found,  so  far  as  was  practicable  from  the  point  of 
view  of  the  company,  in  those  counties  in  which  the  taxes  were  low- 
est, either  because  of  a  low  tax  rate  or  because  of  a  low  valuation. 
The  different  counties  would  therefore  have  a  strong  inducement  to 
bid  for  the  presence  of  such  property  on  March  1st  by  making  the 
assessment  as  low  as  possible.  It  seems  that  in  the  days  when 
assessment  was  in  the  hands  of  the  local  officials  there  was  a  very 
considerable  difference  in  the  valuation  per  mile  of  line  in  the  differ- 
ent counties,  and  in  all  it  was  very  low.'^ 

There  is  at  least  one  other  objection  to  local  assessment.  The 
valuation  of  the  great  public  utilities  presents  many  difficult  problems. 
The  local  authorities  cannot  as  readily  secure  the  data  necessary  for  an 
accurate  assessment  as  can  a  state  board,  and  were  they  to  secure  it 
many  of  them  would  be  unable  to  make  a  proper  use  of  it.  Not 
only  this,  but  the  necessity  of  dealing  with  a  large  number  of  local 
assessors  would  place  a  heavy  burden  upon  the  companies  concerned 
which,  in  all  probability  would  be  shifted  in  one  way  or  another  to 
the  persons  making  use  of  their  services.  All  these  difficulties  are 
much  less  serious  when  the  matter  is  handled  by  a  state  board,  as- 
suming, of  course,  reasonable  success  in  the  selection  of  its  members. 

The  different  reasons  for  state  assessment  do  not  apply  with 
equal  force  in  all  cases.  Telegraph  companies  have  no  rolling  stock. 
In  other  respects,  however,  the  advantage  of  the  application  of 
the  "unit  rule"  is  very  much  the  same  as  in  the  case  of  railroad  com- 
panies.     Street  railways,   with   some   important   exceptions,  have  all 

'See  1  Tax  Commissioners  (1906),  p.  89. 


THE  GENERAL  PROPERTY  TAX  75 

their  property,  both  tangible  and  intangible,  located  in  a  single 
county.  Many  of  the  difficult  problems  of  assessment,  however,  re- 
main. Since  the  State  Board  has  the  responsibility  for  the  assess- 
ment of  other  forms  of  railroad  property,  and  has  experience  in 
the  work  it  seems  reasonable  and  wise  to  treat  street  railway  prop- 
erty as  other  railway  property  is  treated. 

There  are,  then,  four  main  reasons  for  state  assessment:  even  so 
far  as  individual  elements  of  the  property  are  definitely  located  they 
are  but  parts  of  a  larger  whole  which  can  be  most  accurately  assessed 
when  treated  as  a  unit;  much  of  the  property,  particularly  the  fran- 
chise, has  no  definite  location ;  some  of  it  may  readily  be  moved  on 
assessment  day  to  the  counties  that  will  make  the  best  bids  for  it; 
and  the  difficulties  in  collecting  and  utilizing  the  necessary  data  can 
best  be  met  by  a  state  board. 

§3.  Since  the  steam  railway  and  telegraph  systems  are  gen- 
erally interstate,  rather  than  merely  intercounty,  properties  it  may 
seem  that  the  arguments  for  a  central  assessing  authority  point  to 
the  desirability  of  a  federal  rather  than  a  state  board.  From  a  purely 
fiscal  point  of  view  the  case  for  federal  assessment  is  a  strong  one. 
The  wider  range  of  the  National  Government  in  the  selection  of  offi- 
cials and  the  greater  dignity  attaching  to  federal  office  should  make 
it  possible  to  secure  a  higher  degree  of  ability  for  the  work.  This, 
together  with  the  fact  that  a  federal  board  would  have  substantially 
the  whole  of  the  railway  and  telegraph  systems  under  its  supervision, 
might  be  expected  to  result  in  a  more  accurate  assessment.  Even  if 
it  be  conceded  that  the  state  boards  are  successful  in  their  valuations 
they  must  necessarily  duplicate  each  other's  work  to  a  greater  or 
lesser  extent,  and  this  implies  additional  expense,  part  of  which  falls 
directly  upon  the  people  of  the  states  and  part  of  it  indirectly  since 
so  far  as  it  falls  upon  the  companies  it  may  be  expected  to  be  shifted 
eventually,  meanwhile  resting  on  the  companies.  A  federal  board 
could,  moreover,  adopt  some  definite  system  for  apportioning  the 
value  to  the  different  states,  thus  avoiding  a  certain  amount  of  in- 
justice which  naturally  results  from  the  attempt  on  the  part  of  each 
state  to  attribute  to  itself  as  much  of  the  value  as  its  sense  of  jus- 
tice or  the  power  of  the  courts  will  permit. 

The  objections  to  federal  assessment  are  chiefly,  though  not 
altogether,  political  in  character.  Considering  its  exclusive  authority 
over  interstate  commerce,  it  would  probably  be  constitutional  for 
the  National  Government  to  take  into  its  own  hands  the  determina- 


76  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

tion  of  the  value  of  most  of  the  railroad  and  telegraph  property, 
and  the  apportionment  of  this  value  among  the  states.  The  problem, 
however,  is  one  of  state  rather  than  of  federal  finance,  and  the 
states  are  rather  jealous  of  their  rights.  Even  though  the  consti- 
tutionality of  federal  assessment  be  conceded,  it  is  probably,  for  the 
present,   politically   impracticable. 

While  the  advantages  of  federal  over  state  assessment  are  sim- 
ilar in  character  to  the  advantages  of  state  over  county  assessment 
there  is  a  considerable  difference  in  degree.  A  State,  such  as  Wash- 
ington, can  afford  to  employ  men  of  considerable  ability.  While 
the  state  board  does  not  have  under  its  supervision  any  of  the  inter- 
state systems  in  their  entirety  it  does  have  a  considerable  part  of 
them.  Much  of  the  data  that  is  needed  from  outside  of  the  State 
for  the  application  of  the  "unit  rule"  can  be  obtained  without  great 
difficulty.  While  there  is  undoubtedly  a  considerable  amount  of  du- 
plication of  work  where  each  state  makes  use  of  the  "unit  rule"  it  is 
not  intolerable,  as  it  assuredly  would  be  if  the  attempt  were  made 
by  each  county ;  and  a  certain  amount  of  duplication  is  not  wholly 
without  compensation,  since  the  work  of  one  board  can  be  used  to 
check  that  of  another. 

It  should  be  noticed,  moreover,  that  the  State  is  greatly  aided 
by  the  activities  of  the  National  Government.  Railroad  and  telegraph 
companies  doing  an  interstate  business  are  subject  to  the  jurisdic- 
tion of  the  Interstate  Commerce  Commission,  which  not  only  pre- 
scribes their  methods  of  accounting,  but  makes  available  for  the 
public  a  large  mass  of  information  of  other  kinds.  If  this  Com- 
mission did  nothing  else  the  publicity  that  it  assures  would  be  o£ 
great  value.  Moreover  the  Commission  is  now  making  a  physical 
valuation  of  the  railroads;  and  while  the  importance  of  this  may 
easily  be  exaggerated,  especially  with  reference  to  value  for  the 
purpose  of  taxation,  it  may  be  of  some  help. 

§4.  It  is  only  the  operating  property  of  railroad  and  tele- 
graph companies  that  is  subject  to  state  assessment.  Property  owned 
by  them  but  used  for  other  purposes  is  still  subject  to  the  county  as- 
sessors. Real  estate,  for  example,  which  is  held  simply  for  invest- 
ment must  be  reported  to  the  commissioners  but  they  are  not  directly 
concerned  with  its  assessment.  Telephone  and  telegraph  property, 
though  owned  and  operated  by  the  same  company,  are  assessed  by 
different   authorities.      So,   too,    when    an    electric    company    operates 


THE  GENERAL.  PROPERTY  TAX  77 

a  line  of  street  railways  and  at  the  same  time  furnishes  electricity 
for  light,  heat  and  power,  it  is  only  the  railway  property  that  is  as- 
sessed by  the  commissioners. 

While  there  are  some  things  that  are  clearly  operating  property 
and  some  that  are  not,  there  are  others  in  regard  to  which  a  decision 
is  difficult.  Since  it  is  desirable  that  a  uniform  policy  be  followed 
and  since  the  State  Board  of  Tax  Commissioners  has  supervision  of 
the  entire  tax  system,  the  determination  of  the  matter  is  naturally 
left  to  it.  The  matter  may  be  brought  before  it  as  the  result  of  a 
dispute  beween  a  corporation  and  a  county  assessor,  or  the  company 
may  itself  ask  for  a  classification.  A  hearing  is  then  held  and 
evidence  presented,  or  the  members  of  the  Board  may  make  a  per- 
sonal inspection  of  the  property.  If  it  appears  that  the  property 
in  question  is  necessary  to  and  used  in  the  operation  of  the  system, 
a  finding  to  that  effect  is  made;  and  this  debars  the  county  assessor 
from  placing  the  property  upon  his  rolls. 

As  illustration  of  the  sort  of  questions  that  may  arise  may  be 
taken  the  case  of  a  warehouse."  If  it  were  owned  by  a  railroad  com- 
pany and  used  in  connection  with  its  freight  business  it  would  pretty 
clearly  be  operating  property.  The  Commissioners  find,  however, 
that  such  property  is  frequently  leased  to  private  individuals  at  a 
nominal  rental,  the  amount  being  only  sufficient  to  show  a  valuable 
consideration  for  the  lease.  In  this  case  the  warehouse  is  still  re- 
garded as  operating  property.  Again,  grain  warehouses  are  often 
built  by  private  companies  upon  the  right  of  way  on  land  leased 
from  the  railroad  at  a  nominal  rental.  Here  the  warehouse  is  as- 
sessed to  the  warehouse  company  and  the  land  to  the  railroad,  the  lat- 
ter being  included  in  the  operating  property.  Sometimes  stock  yards 
are  erected  upon  land  owned  by  the  railroad  adjacent  to  its  track, 
the  railroad  looking  for  its  remuneration  to  the  business  thus  brought 
to  its  lines.  Here  the  Commissioners  take  into  consideration  all  the 
facts  and  circumstances  that  they  regard  as  pertinent  and  make 
their  decision  accordingly. 

The  definition  of  operating  property  is  a  matter  of  some 
consequence,  both  to  the  corporation  and  to  the  counties  concerned. 
Operating  property  is  assessed  without  regard  to  county  lines,  and 
its  value  is  then  distributed  on  a  basis  of  mileage.  As  a  result  the 
value  of  such  property  as  terminals  and   warehouses   is   spread   over 

the  various  counties  in  which  the  railroad  has  its  right  of  way.     This 

'This,   and    the   examples   Immediately   following   were   kindly   furnished 
the  author   by   the   State   Board   of   Tax   Commissioners. 


78  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

is,  of  course,  unfavorable  to  such  counties  as  King,  Spokane,  and 
Pierce,  in  which  the  large  cities,  and  consequently  the  most  facilities 
of  this  sort,  are  situated.  If  such  property  were  locally  assessed  it 
would  help  to  swell  the  valuation  of  the  county  and  municipality  and 
thus  make  possible  a  lower  tax  rate.  As  it  is,  a  part  of  the  value 
is  regarded  as  lying  in  the  smaller  counties.  This  is,  of  course,  fa- 
vorable to  them,  and  since  the  tax  rates  for  all  purposes  are  smaller 
there  than  in  the  counties  containing  the  large  cities,  it  is  favorable  to 
the  corporations  whose  property  is  thus  assessed. 

It  is  clearly  desirable  that  all  property  used  in  the  operation  of 
a  railroad  or  telegraph  system  should  be  assessed  as  a  unit.  It  does 
not  follow,  of  course,  that  distribution  of  the  value  on  a  strict  basis 
of  mileage  is  desirable;  and  the  merits  of  the  complaints  of  the 
larger  counties  can  best  be  considered  in  connection  with  the  appor- 
tionment of  the  value   among  the  counties. 

§5.  The  powers  of  the  State  Board  of  Tax  Commissioners  for 
making  an  assessment  seem  to  be  ample.  An  elaborate  declaration 
is  required  of  each  of  the  companies  concerned.  Witnesses  may  be 
summoned  and  examined  under  oath.  Upon  notice  to  the  company 
depositions  of  witnesses  outside  of  the  State  may  be  required.  The 
Commissioners  may  personally  examine  the  property.  The  Public 
Service  Commission^  has  made  its  own  valuation  of  many  of  the 
properties  concerned  and  has  collected  a  considerable  amount  of  in- 
forTnation  of  which  the  Tax  Commissioners  may  make  use.  The  re- 
ports of  the  Interstate  Commerce  Commission  are,  of  course,  avail- 
able. The  corporations  concerned  have  a  right  to  a  hearing  at  the 
time  the  assessment  is  made,  and  most  of  the  large  railroad  companies 
take  advantage  of  this  right. 

The  law  prescribes  in  some  detail  the  character  of  the  declara- 
tions that  the  companies  are  required  to  make,  providing  nineteen 
questions  for  railway  and  twenty-two  for  telegraph  companies,  and 
giving  to  the  Commissioners  the  power  to  add  others.  As  a  result 
each  of  the  declarations  makes  a  considerable  volume.  Besides  va- 
rious facts  as  to  their  history,  organization,  and  officers,  railroad 
companies  must  give  full  information  as  to  the  amount,  nature,  par, 
and  market  value  of  securities ;  the  amount  of  interest  and  dividends 
paid  thereon  for  a  series  of  years ;  securities  of  other  companies 
owned  by  or  held  in  trust  for  the  company  making  the  declaration; 

details  as  to  mileage,  considering  the  mileage  of  each  kind  of  track 

^Strictly  the  regulating  body  was  the  Railroad  Commission  until  1911, 
but  to  avoid  cumbering  the  text  the  present  name  will  be  used  in  this  dis- 
cussion. 


THE  GENERAL  PROPERTY  TAX  79 

in  each  city,  town,  school,  and  road  district  in  which  the  company 
operates  in  the  State;  income  and  its  disposition  for  a  series  of  years; 
rolling  stock;  taxes  paid  in  other  States;  a  description  of  all  lands 
except  those  held  under  the  land  grants,  whether  used  for  operating 
purposes  or  not;  and  several  other  items.  They  must  also  file  copies 
of  their  reports  to  stockholders,  to  the  Interstate  Commerce  Com- 
mission, and  to  the  public  utility  commissions  of  this  and  other  States 
in  which  they  operate.  The  declarations  of  street  railway  and  tele- 
graph companies  are  similar  in  character.  These  declarations  must 
all  be  made  under  oath  by  the  president  or  other  chief  officer  and  of 
the  secretary,  treasurer,  auditor,  or  superintendent. 

In  case  of  failure  on  the  part  of  the  company  to  make  the  dec- 
laration or  to  furnish  the  information  required  of  it  the  commissioners 
are  required  to  make  the  assessment  as  best  they  can,  and  the  com- 
pany must  accept  their  conclusions  unless  it  is  prepared  to  show  that 
substantial  injustice  has  been  done.  As  a  matter  of  fact  the  Com- 
missioners  have  no  trouble  in  securing  the  reports  required. 

As  we  have  seen  in  connection  with  county  assessment  the  dec- 
laration is  often  an  unreliable  method  of  determining  the  value  of 
property  or  even  the  facts  on  which  a  correct  estimate  can  be  based. 
This,  however,  does  not  apply  to  the  property  of  railroad  and  tele- 
graph companies  to  anything  like  the  extent  to  which  it  does  in 
many  other  cases.  Railroads  and  telegraphs  are  managed  by  public 
service  companies  and  are  subject  to  regulation  both  by  the  National 
Government  and  by  the  states  in  which  they  operate.  Except  so 
far  as  they  lie  within  a  single  state  even  their  methods  of  account- 
ing    are     prescribed     by     the  Interstate    Commerce    Commission. 

As  regards  most  of  these  properties  it  must  be  remembered  that 
Washington  is  one  of  the  states  in  which  a  complete  valuation  has 
been  made  for  the  purpose  of  regulation.  This  is  not  true  of  all  the 
properties,  but  it  is  true  of  the  most  important  of  them.  A  value 
that  is  fair,  both  to  the  State  and  the  corporations,  for  regulation 
is  not  necessarily  fair  for  taxation;  and  the  Tax  Commissioners  are 
not  bound  to  accept  the  findings  of  the  Public  Service  Commission. 

§6.  To  many  it  seems  absurd  that  there  should  be  two  distinct 
values  for  the  same  thing;  and  the  Tax  Commissioners  have  not  al- 
ways had  the  power  they  now  possess.  The  two  commissions  were 
established  by  the  same  legislature.  Apparently  each  had  the  right 
to  make   its   own   valuation,   but  the   Court  held^   that  the   power   of 

*State   ex  rel.  Oregon   Railway   &  Navigation  Co.   v.   Clausen,   63   Wash. 
535. 


80  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

the  Tax  Commissioners  to  make  an  independent  valuation  was  con- 
fined to  those  cases  in  which  the  Railroad  Commission  had  not  acted. 
In  1911,  when  the  Public  Service  Commission  was  established  to  take 
the  place  of  the  Railroad  Commission  it  was  provided  that  its  val- 
uation should  furnish  a  minimum  below  which  the  Tax  Commis- 
sioners might  not  go.  On  the  assumption  that  there  can  be  only 
one  value  this  provision  seems  illogical.  In  1913  it  was  repealed, 
and  the  Tax  Commissioners  now  make  an  independent  valuation  when 
it  seems  proper  to  them  to  do  so.  Soon  after  this  change  was  made 
there  was  an  unsuccessful  attempt  made  to  deprive  the  Tax  Com- 
missioners   of    their    power    by    initiative    legislation. 

The  reasons  for  independent  valuations  by  the  two  commis- 
sions can  best  be  understood  if  it  is  kept  clearly  in  mind  that  the 
Public  Service  Commission  is  concerned  with  the  value  on  which 
the  companies  should  be  allowed  to  earn,  if  they  can  do  so  by  fair 
methods,  a  fair  return.  For  them  the  amount  of  the  legitimate  in- 
vestment, on  its  cost  side,  is  a  consideration  of  primary  importance. 
The  Tax  Commissioners  are  concerned  with  the  actual  value  of  the 
property  as  a  business  proposition.  This  is  dependent  primarily, 
not  upon  cost,  but  upon  net  earnings.  The  distinction  is  fairly  well 
brought  out  if  it  is  said,  without  any  attempt  to  speak  with  scientific 
accuracy,  that  the  regulating  authority  is  concerned  with  the  value 
that  ought  to  be ;  whereas  the  taxing  authority  is  concerned  with  the 
value  that  is.     These  two  values  are  not  necessarily  the  same. 

It  may  be  thought  that  the  Public  Service  Commission  should 
so  regulate  rates  that  the  "true"  value,  dependent  as  it  is  upon 
earnings,  would  conform  to  its  "fair"  value.  This,  however,  is  not 
always  practicable.  To  consider  fully  why  it  is  not  would 
require  a  study  of  the  very  complicated  problems  connected  with  the 
establishment  of  "fair"  value  and  "fair"  return.  Such  a  study  would 
here  be  out  of  place,  but  a  few  of  the  important  points  may  be  no- 
ticed. 

First  of  all,  the  authority  of  the  Public  Service  Commission  is 
confined  to  the  State  of  Washington.  Even  if  it  were  successful  in 
determining  accurately  the  value  of  the  property  within  the  State 
it  would  have  no  power  to  regulate  the  rates  on  interstate  traffic,  nor 
could  it  use  its  power  on  business  done  entirely  within  the  State 
to  offset  what  it  regarded  as  undue  profits  on  interstate  traffic.  In 
so  far   as  the  regulations   imposed  by  the   National  Government  are 


THE  GENERAL.  PROPERTY  TAX  81 

more  or  less  favorable  to  the  companies  than  those  imposed  by  the 
state  the  "true"  value  will  be  greater  or  smaller  than  the  "fair" 
value  as  found  by  the  Public  Service  Commission. 

In  the  second  place,  quite  apart  from  any  conflict  of  national  and 
state  authority,  the  power  to  fix  rates  is  subject  to  limitations  im- 
posed by  economic  conditions.  It  sometimes  happens  that,  owing  to 
an  original  mistake  in  entering  a  given  territory  or  to  a  change  in 
conditions,  there  is  no  possible  rate  that  will  enable  the  corporation 
to  earn  a  fair  return  on  its  legitimate  investment.  In  such  a  case 
the  "true"  value  will  necessarily  be  less  than  the  "fair"  value. 

Finally,  to  consider  only  one  other  point,  commissions  have 
commonly  found  that  the  rate  situation  in  a  given  territory  must 
often  be  considered  as  a  whole.  If,  for  example,  there  are  two  com- 
peting railroads  the  rates  that  one  is  able  to  charge  are  limited  by 
the  rates  charged  b}'  the  other.  If  the  rates  permitted  to  both  are 
such  as  to  allow  a  fair  return  on  the  more  expensive  road  the  "true" 
value  of  the  other  will  be  higher  than  the  "fair"  value  that  might 
otherwise  be  found  to  exist.  If  the  cheaper  road  be  limited  to  rates 
that  will  yield  it  only  a  fair  return  the  other,  even  if  permitted 
by  the  commission,  cannot  collect  higher  rates,  and  its  true  value 
will  be  less  than  its  "fair"  value.  Often  it  is  found  that  both  jus- 
tice to  the  company  having  the  more  expensive  property  and  public 
welfare  require  that  both  roads  should  be  allowed  to  exist  and  earn 
some  profit.  With  the  question  of  what  policy  the  regulating  author- 
ity should  adopt  we  are  not  here  concerned.  Whatever  be  their  pol- 
icy the  "true"  value  of  at  least  one  of  the  roads  will  differ  from 
its  "fair"  value;  and  this  will  be  the  case  as  long  as  by  "fair"  value 
is  meant  the  value  on  which  the  company  should  be  allowed  to  earn 
a  fair  return,  and  by  "true"  value  the  amount  that  the  property  is 
actually  worth. 

A  practical  illustration  is  furnished  by  the  Oregon-Washington 
Railroad  and  Navigation  Company.  The  Tax  Commissioners  found 
that  this  road,  running  from  the  wheat  fields  of  Washington  to  Port- 
land, Ore.,  by  what  is  largely  a  water  level  grade,  was  constructed 
at  low  cost.  The  value  placed  upon  it  by  the  Railroad  Commission 
was  very  much  less  than  its  market  value  as  determined  by  the  cap- 
italization of  its  earning  power.  The  Interstate  Commerce  Com- 
mission could  not  reduce  its  rates  without  very  injuriously  affecting 
other    railroads.^      In    this    case    the    "true"    value    was    considerably 

more  than  the  "fair"  value. 

'Former    Commissioner    Frost,    "Taxation    in    Washington,"    p.    142. 


32  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

There  is  then  nothing  absurd  or  unreasonable  in  the  use  of  two 
distinct  valuations.  The  term  "value"  is  not  used  in  the  same  sense 
in  both  cases;  and  regulations  based  on  the  supposition  that  it  is  are 
very  likely  to  result  in  injustice.  It  is  entirely  legitimate,  however, 
for  each  of  the  commissions  to  make  use  of  the  data  collected  by  the 
other;  and,  as  a  matter  of  fact,  the  Tax  Commissioners  have  relied 
to  a  considerable  extent  on  the  facts  found  of  the  Public  Service 
Commission. 

§7.  The  first  assessment  by  the  Tax  Commissioners  was  made  in 
1908.  At  that  time  four  of  the  railroads,  including  the  Northern 
Pacific  and  the  Great  Northern,  had  just  been  valued  by  the  Rail- 
road Commission;  and  the  findings  made  and  the  values  fixed  by  that 
body  were  taken  by  the  Tax  Commissioners  as  the  basis  of  assess- 
ment.® In  general  they  seem  to  have  made  use  of  similar  findings 
wherever  practicable,  exercising  their  own  judgment  since  they  have 
been  at  liberty  to  do  so,  in  readjusting  the  valuation  so  as  to  make 
it  more  appropriate  for  the  purpose  in  hand,  or  in  the  making  of  cor- 
rections that  they  regard  as  desirable. 

Since  so  much  reliance  is  placed  on  the  findings  of  the  Public 
Service  Commission  an  examination  of  its  methods  would  be  inter- 
esting and  not  without  importance.  Such  an  examination,  however, 
is  quite  out  of  the  question  in  this  place.  In  general,  it  may  be  said 
that  its  investigations  have  been  detailed  and  elaborate.  In  the  case 
of  the  Northern  Pacific,  for  example,  the  records  were  examined  to 
show  original  cost  of  construction;  engineers  were  employed  to  exam- 
ine the  property  in  detail,  so  far  as  it  lay  within  the  State,  to  de- 
termine cost  of  reproduction,  depreciation,  and  present  condition; 
the  market  value  of  the  securities  over  a  period  of  years  was  ascer- 
tained ;  statistics  showing  density  and  character  of  the  traffic  were 
collected.  On  the  basis  of  all  the  information  obtained  the  value  of 
the  property  within  the  State  was  determined. 

In  some  cases,  especially  where  findings  of  the  Public  Service 
Commission  were  not  available,  the  Tax  Commissioners  made  use  of 
what  is  known  as  the  "stock  and  bond"  method.  By  this  method 
valuation  is  based  chiefly  on  the  market  value  of  the  stocks  and 
bonds,  averaged  over  a  period  of  years.  Since  the  securities,  taken 
together,  represent  ownership,  their  value  may  be  regarded  as  the 
market's  estimate  of  the  value  of  the  property  including  intangible 

•Tax   Commissioners    (1908),   p.    19. 


THE  GENERAL  PROPERTY  TAX  83 

as  well  as  tangible  elements  of  value.  While  much  may  be  said  in 
favor  of  this  method,  especially  if  the  term  "market  value"  be  taken 
strictly,  it  should  be  noticed  that  the  estimate  of  the  security  mar- 
ket is  aflfected  by  a  number  of  considerations  that  have  little  bearing 
on  the  fundamental  value  of  the  property.  The  policy  of  a  corpora- 
tion as  to  the  distribution  of  profits  as  dividends  or  their  investment 
in  the  business,  for  example,  has  an  effect  on  current  quotations. 
Special  conditions  may  cause  securities  to  be  put  on  the  market  at 
a  sacrifice.  In  some  cases  at  least  the  Commissioners  have  adopted 
the  plan  of  "checking"  the  value  thus  obtained  by  the  capitalization 
of  net  earnings  at  a  rate  equal  to  the  ratio  of  average  dividends  to 
the  market  value  of  the  stock. 

In  some  instances  the  stock  of  a  corporation  practically  never 
appears  on  the  market,  and  consequently  no  quotations  are  available. 
Such  was  the  case,  for  example,  with  the  Oregon-Washington  Rail- 
road and  Navigation  Company,  substantially  all  of  whose  stock  was 
held  in  the  interest  of  the  Union  Pacific.  In  this  case  the  Tax  Com- 
missioners placed  upon  the  property  a  valuation  based  upon  the  capi- 
talization of  net  earnings  at  a  rate  which,  in  the  judgment  of  the 
Commissioners,  would  have  to  be  paid  for  money  on  similar  security.^ 

The  objection  is  made  by  the  corporations  assessed  by  the  Tax 
Commissioners,  as  it  is  by  the  public  utility  companies  locally  as- 
sessed, that  the  methods  adopted  are  such  as  to  include  "good-will," 
or  "going  concern  value,"  whereas  this  is  not  done  in  other  cases. 
There  is  some  ground  for  this  objection,  notwithstanding  the  fact 
that  "good  will,"  in  the  case  of  natural  monopolies  does  not  mean 
precisely  what  it  means  in  the  case  of  competitive  concerns.  If  the 
idea  of  taxing  property  is  to  be  adhered  to  strictly,  earnings  that 
are  due  to  the  superior  administration  of  property  should  not  be 
capitalized  in  determining  taxable  value.  Any  special  privilege,  how- 
ever, such  as  that  represented  by  the  franchise  is  property,  and  if 
it  has  value  should  be  taxed.  If  value  as  a  going  concern  is  to  be 
regarded  as  property,  as  in  many  cases  it  is,  it  should  be  taxed  in 
all  cases.  The  best  excuse  for  the  different  treatment  of  public  util- 
ity companies  is  that  the  extra  value  is  primarily  a  franchise  value, 
and  that  it  is  impossible  to  distinguish  between  its  primary'  and  its 
secondary  character.^ 

'Former  Commissioner  Frost,  "Taxation   in  Washington."   pp.   142-3. 

»In  a  very  recent  decision  the  Supreme  Court  distinguishes  between 
good  will  as  an  intangible  value  due  to  the  personal  element  and  good 
will  as  an  intangible  value  attaching  to  the  property  regardless  of  own- 
ership. Northern  Pacific  Railway  Company  v.  the  State  of  Washington, 
84  Wash.   510-544. 


84  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

§8.  Whatever  be  the  methods  adopted  for  determining  the  value 
of  an  entire  system,  the  problem  necessarily  arises  as  to  what  por- 
tion of  it  should  be  attributed  to  the  state.  The  taxation  of  property 
used  in  interstate  commerce  is,  of  course,  subject  to  limitations  im- 
posed by  the  National  Government;  and  a  considerable  number  of  de- 
cisions bearing  on  the  subject  have  been  made  by  the  courts.  In 
the  light  of  these  decisions  there  seems  to  be  no  doubt  as  to  the 
constitutionality  of  a  tax  that  is,  in  good  faith,  a  tax  on  property,  or 
even  upon  earnings,  within  the  State ;  and  which  embodies  neither 
a  discrimination  against  interstate  commerce  nor  an  attempted  reg- 
ulation of  it." 

In  determining  the  proportion  of  the  value  of  property  used  in 
interstate  commerce  that  should  be  apportioned  to  the  State,  as  in 
determining  the  entire  valuation,  much  is  left  to  the  discretion  of  the 
Commissioners.  The  Board  is  directed^"  to  take  into  account  the 
mileage  of  the  entire  system  and  of  that  portion  of  it  which  lies 
within  the  State  "together  with  such  other  information,  facts  and 
circumstances  as  will  enable  the  board  to  make  a  substantially  just 
and  correct  determination."  The  last  clause  is  of  great  importance, 
since  Washington  is  a  state  in  which  valuable  terminal  properties 
are  located  and  in  which  a  large  amount  of  interstate  business  is 
done. 

As  a  matter  of  fact  the  Tax  Commissioners  rely  very  largely  on 
the  findings  of  the  Public  Service  Commission.  It  must  be  re- 
membered that  this  body  has  made  an  elaborate  and  detailed 
study  of  the  railroad  and  telegraph  systems,  and  for  the  Tax  Com- 
missioners to  duplicate  their  investigations  would  involve  consid- 
erable expense.  Here  again,  a  study  of  the  methods  adopted  by  the 
Public  Service  Commission  would  be  interesting,  but  is  impracticable. 
Again,  however,  a  few  points  connected  with  the  valuation  of  the 
Northern  Pacific  may  be  noticed.  So  detailed  was  this  investigation 
that  on  the  basis  of  several  of  the  tests  used  much  of  the  property 
that  should  be  attributed  to  the  State  was  definitely  located  there. 
Where  an  apportionment  was  necessary  various  methods  were  used, 
depending  upon  the  particular  element  of  value  under  consideration. 
Generally,  but  not  always,  it  was  some  form  of  mileage,  such  as  pas- 
senger mileage,  engine  mileage,  etc.      Bringing  the  various   elements 

»For    a    general    discussion    of    the    subject    see    Seligman,    "Essays    in 
Taxation"    (8th  edition),   pp.   264-270. 

""Shall'    In    the    case    of    railroads,    "may"    in    the    case    of    telegraphs. 
OtherA^'lse    the    provisions    governing    the    two    are    substantially    identical. 


THE  GENERAL  PROPERTY  TAX  85 

of  value  together,  and  combining  them  in  a  manner  that  cannot  be 
clearly  seen  in  the  findings,  the  total  value  of  the  property  within  the 
State  was   determined. 

The  value  of  the  rail  and  telegraph  property  within  the  State 
having  once  been  fixed  and  due  allowance  made  for  "commercial,"  as 
opposed  to  operating,  property,  the  annual  assessment  consists  simply 
in  making  such  adjustments  as  changes  in  conditions  or  new  infor- 
mation seems  to  warrant.  Here  again  reference  is  made  to  the  find- 
ings of  the  Public  Service  Commission.  The  earnings  of  the  com- 
panies as  shown  by  their  annual  reports  are  taken  into  account.  A 
very  important  consideration,  in  the  opinion  of  the  Tax  Commis- 
sioners, is  the  location  of  a  railroad  and  its  connection  with  the 
transcontinental  lines,  special  attention  being  paid  to  the  charac- 
ter of  the  district  through  which  it  runs  with  reference  to  its  ability 
to  furnish  a  large  amount  of  traffic. 

§9.  The  value  of  the  operating  property  within  the  State  is 
apportioned  among  the  counties  on  a  mileage  basis.  In  the  case  of 
telegraph  companies  single  wire  mileage  is  used.  In  the  case  of 
railroad  companies  the  track  is  classified  as  main  line  and  branches, 
and  each  of  these  is  subclassified  as  main  track,  second  track,  etc., 
and  sidings.  Branches  are  assigned  a  value  per  mile  equal  to  a 
percentage  of  the  value  of  the  main  line.  This  percentage  is  not 
the  same  in  all  cases,  but  depends  on  earning  capacity,  as  ascertained 
by  the  Commissioners.  The  values  of  the  Palouse  and  Grays  Harbor 
branches,  of  the  Northern  Pacific,  for  example,  which  run  through 
good  territory,  were  in  1914  fixed  at  forty  per  cent  of  the  main  line 
value  per  mile,  the  other  branches  bearing  thirty-five  per  cent.  Sec- 
ond track  and  sidings  are  treated  in  a  similar  manner,  sidings  being 
commonly,  though  not  invariably,  regarded  as  worth,  per  mile,  twenty 
per  cent  of  the   value   of   the   main  track  with   which   they   connect. 

It  will  be  noticed  that  the  method  of  apportioning  the  value  of 
operating  property  to  the  counties  differs  considerably  from  that  of 
determining  how  much  of  the  value  of  the  system  lies  within  the 
State.  For  the  State  the  different  elements  of  value  were  sepa- 
rately considered  and,  wherever  possible,  each  element  that  could 
properly  be  regarded  as  located  within  the  State  was  definitely  as- 
signed to  it.  The  value  of  terminal  proj>erties,  for  example,  at  least 
as  far  as  it  was  dependent  on  cost,  was  not  prorated  over  the  system. 
Where  an  apportionment  was  necessary  it  was  based  on  whatever 
principle   seemed   most   appropriate — cost   of   construction,   ton   mile- 


86  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

age,  car  mileage,  etc.  In  the  case  of  the  counties,  however,  attention 
is  confined  to  track  mileage,  modified  only  by  the  classification  of 
trackage.  The  value  of  terminals  and  similar  properties  is  therefore 
prorated  over  the  counties  in  which  the  company  has  its  lines.  For 
this  treatment  of  the  counties  the  Tax  Commissioners  are  not,  of 
course,  responsible.     They  simply  act  in  the  manner  required  by  law. 

As  has  already  been  pointed  out  this  arrangement  is  not  satis- 
factory to  the  counties  in  which  such  property  as  the  terminals  is 
located.  Just  what  policy  should  be  followed  is  a  matter  on  which 
students  of  taxation  are  not  in  entire  agreement.  It  is  understood, 
of  course,  that  mileage,  as  a  basis  of  apportionment,  is  not  exact, 
but  is  adopted  as  a  practical  measure  designed  to  work  substantial 
justice.  The  question  is  whether  or  not  it  is  even  approximately 
fair. 

§10.  The  argument  in  favor  of  the  present  system  is  fairly 
simple.  Operating  property  should  be  valued  as  a  unit.  It  is  only 
as  a  part  of  a  railroad  system  that  a  terminal  has  value.  Each 
county  through  which  the  road  runs  contributes  to  its  traffic,  and  so 
to  its  earnings.  While  it  is  true  that  the  terminals  are  physically 
located  in  the  large  cities,  their  value  depends  on  the  earnings  of 
the  system.  To  give  to  the  terminal  counties  all  the  taxes  secured 
from  such  property  would  be,  in  effect,  to  permit  them  to  tax  the 
business  provided  by  the  rest  of  the  State. 

From  one  point  of  view  the  argument  for  track  mileage,  if  it  be 
accepted  at  all,  proves  too  much.  It  is  not  only  the  counties  in  which 
the  railroads  lie  that  supply  traffic  and  thus  contribute  to  earnings. 
It  would  seem  that  those  that  have  no  railroads  at  all  should  have 
some  share  of  the  taxes.  The  case  becomes  very  much  stronger  when 
consideration  is  given  to  the  smaller  political  divisions,  such  as  the 
school  districts.  That  a  system  that  excludes  them  is  unfair  is  the 
opinion  of  some  students  of  the  subject.^^ 

While  something  may,  perhaps,  be  conceded  to  the  view  that 
traffic  is  an  important  consideration,  especially  when  this  is  applied 
to  the  business  as  a  whole,  and  not  simply  to  terminal  property,  it 
must  be  remembered  that  the  tax  is  not  supposed  to  be  upon  traflSe  or 
earnings,  but  on  property.     Real  property  is  almost  universally  taxed 

"See  Brindley,  "Discussion  of  Assessment  of  Railroads,"  VI  National 
Tax    Association,    p.    503. 

The  "Waslilngton  State  Board  of  Tax  Commissioners  includes  in  Its 
"List  of  Indictments  against  tlie  General  Property  Tax"  that  it  is  "A 
system  that  distributes  the  revenue  from  public  service  corporations  only 
to  such  counties  and  minor  taxing-  districts  as  are  fortunate  enough  to 
contain  wire  or  rail  mileage."     5  Tax  Commissioners,  p.  20. 


THE  GENERAL.  PROPERTY  TAX  87 

where  it  lies,  and  if  personal  property  is  taxed  otherwise  it  is  ordi- 
narily taxed  at  the  domicile  of  the  owner — a  principle  which  in 
this  case  can  have  no  application.  It  should  be  noticed  also  that  the 
argument  here  applied  to  terminals  might,  on  the  same  ground,  be 
applied  to  jobbing  houses,  factories,  and,  still  more,  to  docks  and 
warehouses  that  are  not  operated  as  a  part  of  a  railroad  system. 
While  property  might,  in  spite  of  custom  and  precedent,  be  regarded 
as  constructively  in  the  place  from  which  business  is  derived,  it 
would  be  better  to  do  away  completely  with  property  as  a  basis  for 
taxation.  Another  plan  would  be  to  separate  the  sources  of  state 
and  local  revenue,  assigning  all  taxes  from  property  of  this  sort  to 
the  State.  Either  of  these  plans  would  require  a  constitutional 
amendment. 

§11.  If,  however,  the  larger  counties  wish  to  secure  a  change 
in  the  law  so  that  the  value  of  terminal  property  will  be  assigned 
to  them  they  must  urge  something  stronger  than  the  desirability  of 
strict  adherence  to  the  theory  of  a  property  tax  and  of  the  consistent 
treatment  of  different  kinds  of  property.  It  is  not  difficult  to  see 
that  there  is  much  to  be  said  for  the  justice  of  their  position. 

It  is  no  accident  that  the  terminals  are  located  in  the  larger  com- 
munities. It  is  there  that  the  large  commercial  and  industrial  enter- 
prises on  which  the  terminal  business  is  dependent  are  to  be  found. 
It  is  there  that  provision  is  made  for  the  labor  that  is  employed.  So 
close  is  the  relation  between  the  terminal  and  the  city  that  if  the 
former  were  established  and  successfully  operated  where  no  city  ex- 
isted one  would  grow  up  around  it.  Not  only  does  the  city  offer  ad- 
vantages as  a  terminal  point,  but  the  presence  of  the  terminal  implies 
large  public  expenses  that  must  be  defrayed  by  taxation. 

Very  much  the  same  argument  may  be  applied,  though  with 
somewhat  less  force,  to  freiglit  and  passenger  stations,  warehouses, 
elevators,  etc.,  along  the  line.  Their  location  is  not  ordinarily  arbi- 
trary or  accidental.  They  are  established  at  the  points  which  offer 
the  best  facilities;  and  they  ordinarily  bring  with  them  expenses  that 
must  be  defrayed  by  taxation.  There  are  doubtless  exceptional  cases. 
If  it  were  possible  it  would  be  well  to  deal  with  each  case  on  its 
merits.  Except  so  far,  however,  as  discretion  is  vested  in  the  ap- 
portioning authority,  the  law  must  be  framed  with  a  view  to  normal 
conditions. 

In  the  case  of  other  forms  of  operating  property  the  practical 
advantages   of  the  mileage  basis   are  greater  and  the  argument  that 


S8  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

it  results  in  substantial  injustice  is  much  weaker.  Doubtless,  in  view 
of  the  work  of  the  Public  Service  Commission,  it  would  be  possible 
to  apply  to  the  local  taxing  districts  the  same  methods  that  are  ap- 
plied to  the  State  as  a  whole.  This,  however,  would  involve  some 
expense,  it  would  give  rise  to  political  difficulties,  and  it  may  be 
seriously  questioned  whether  it  is  necessary  in  the  interest  of  justice. 

The  investment  of  a  large  amount  of  wealth  in  the  form  of 
track,  bridges,  tunnels,  etc.,  in  a  given  county  is  ordinarily  due,  not 
so  much  to  the  advantages  to  be  found  there  as  to  the  physical  diffi- 
culties of  the  country.  While  the  presence  of  a  railroad  doubtless 
adds  something  to  the  expenses  of  the  county  or  city  through  which 
it  passes,  in  much  the  same  way  as  does  the  presence  of  a  terminal, 
there  would  seem  to  be  a  reasonably  close  relation  between  the  mile- 
age and  the  extent  to  which  it  does  so. 

Upon  the  whole  the  difficulties  of  apportionment  strongly  sug- 
gest the  desirability,  in  the  case  of  properties  of  this  sort,  of  some 
form  of  taxation  other  than  the  general  property  tax.  If,  however, 
this  tax  is  to  be  continued  it  would  seem  that  mileage,  with  some 
allowance  for  terminals  and  similar  property,  is  about  as  satisfactory 
a  method  as  is  available. 

§12.  The  assessed  value  of  the  operating  property  of  railroad 
and  telegraph  companies  is  not,  of  course,  finally  determined  until 
it  has  been  acted  upon  by  the  State  Board  of  Equalization.  As  re- 
gards property  of  this  sort  the  work  of  the  Board  may  be  divided 
into  two  parts:  it  has  to  determine  how  far  the  Commissioners  have 
succeeded  in  ascertaining  the  true  value ;  and  it  has  to  apply  to  the 
value  apportioned  to  each  county  the  ratio  of  assessed  to  true  value 
applied  by  that  county  to  other  forms  of  property. 

Until  the  legislative  session  of  1915  the  State  Board  of  Equal- 
ization consisted  of  the  State  Auditor,  the  Commissioner  of  Public 
Lands,  and  the  State  Board  of  Tax  Commissioners.  At  that  session 
an  attempt  to  abolish  the  State  Board  of  Tax  Commissioners  was 
defeated  only  by  the  Governor's  veto.  As  a  preliminary  to  the  aboli- 
tion of  the  Board  a  bill  was  passed,  over  the  Governor's  veto,  pro- 
viding that  the  place  of  the  Commissioners  on  the  Board  should  be 
taken  by  a  member  of  the  Public  Service  Commission  to  be  desig- 
nated by  the  Governor. 

The  change  in  the  personnel  of  the  Board  will,  perhaps,  result 
in  some  changes  in  the  methods  by  which  it  does  its  work.  The 
part  played  by  the  Tax  Comissioners,  however,  has  been  so  impor- 


THE  GENERAL  PROPERTY  TAX  89 

tant  that  some  consideration  may  well  be  given  to  the  methods  here- 
tofore adopted.  Moreover,  if  the  Tax  Commissioners  are  to  remain 
a  permanent  part  of  the  taxing  machinery  of  the  State  it  is  not  im- 
possible that  they  will  be  restored  to  their  places  on  the  Board  of 
Equalization. 

In  its  attempts  to  ascertain  how  far  the  Tax  Commissioners 
have  been  successful  in  ascertaining  the  true  value  of  the  property 
assessed  by  them  the  work  of  the  State  Board  of  Equalization  is  very 
similar  to  that  of  the  county  boards.  The  State  Board  may  increase 
or  decrease  the  valuation  fixed  by  the  Commissioners,  and  in  the 
former  case  must  serve  due  notice  on  the  corporation  concerned.  In- 
terested parties  may,  of  course,  appear  before  the  Board  and  the 
more  important  public  service  corporations  commonly  send  their  rep- 
resentatives. 

In  connection  with  this  phase  of  the  work  there  is  perhaps 
some  excuse  for  the  removal  of  the  Commissioners  from  membership. 
Heretofore  they  have  constituted  a  majority  of  the  Board,  and  con- 
sequently the  assessments  that  they  have  previously  made  could  not 
be  changed  without  the  consent  of  at  least  one  of  them.  If  the 
Board  of  Equalization  is  to  be  regarded  as  a  tribunal  to  which  ap- 
peals can  be  taken  it  would  seem  that  they  should  not  be  under  the 
control  of  the  board  making  the  original  assessment. 

Quite  different  is  the  case  as  far  as  the  determination  of  the 
ratio  of  assessed  to  true  value  in  the  counties  and  its  application  to 
railroad  and  telegraph  property  is  concerned.  The  collection  of  data 
for  this  purpose  has  heretofore  been  done  very  largely  by  the  Com- 
missioners. It  is  difficult  to  see  how  any  of  the  present  members  of 
the  Board  of  Equalization  are  in  even  approximately  as  good  a  posi- 
tion to  do  this  work  as  are  the  Commissioners.  It  is  possible  that  the 
latter  will  continue  to  collect  the  data,  though  it  seems  to  be  more 
properly  the  work  of  equalization. 

In  order  to  ascertain  the  ratio  of  assessed  to  true  value  in  the 
counties  the  Commissioners  have  heretofore  spent  a  considerable  part 
of  the  summer,  in  the  even  numbered  years,  in  traveling  over  the 
State  and  taking  sworn  testimony  in  each  county  as  to  the  actual 
consideration  in  real  estate  transfers.  Lists  were  made  showing 
values  based  on  this  testimony  and  the  values  found  by  the  assessors. 
At  its  regular  session,  which  is  held  in  September,  the  Board  of 
Equalization  considered  the  information  thus  collected,  and  received 
further   testimony    from    public   service   corporations,    from   assessors, 


90  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

and  from  other  interested  parties.  On  the  basis  of  all  the  facts  be- 
fore it  the  Board  formed  its  opinion  as  to  the  ratio  applied  in  each 
county. 

§13.  Just  how  far  the  system  of  state  assessment  has  been  suc- 
cessful in  securing  the  fair  valuation  of  the  operating  property  of 
railroad  and  telegraph  companies  it  is  impossible  to  say.  Not  only 
would  the  answer  to  such  a  question  involve  a  knowledge  of  what 
the  property  is  actually  worth,  but  it  would  involve  a  knowledge  of 
the  extent  to  which  the  State  Board  of  Equalization  is  successful  in 
ascertaining  the  ratio  of  assessed  to  true  value  in  the  counties.  There 
are,  however,  some  reasons  for  thinking  that  as  a  result  of  state  as- 
sessment the  corj>orations  in  question  pay  at  least  their  full  share  of 
taxes. 

There  can  be  no  doubt  that  under  this  system  the  valuation  of 
the  railroads  has  been  enormously  increased.  In  1907,  the  last  year 
in  which  such  property  was  locally  assessed,  the  total  assessed  val- 
uation was  $43,603,546.  The  next  year  it  was  $84,642,349,  or 
something  less  than  twice  as  much.  After  that  it  increased  rapidly 
till  1912  when  it  was  placed  at  $135,522,077.  It  fell  off,  for  the 
first  time,  in  1913  but  fell  only  slightly.  In  1914  it  was  $137,538,- 
331.^^  This  is  an  increase  in  valuation  in  seven  years  of  nearly  211 
per  cent.  During  this  time  the  number  of  miles  of  line  increased 
from  3,806.62  to  5,246.81,^^  or  about  38  per  cent. 

Taking  into  account  only  the  period  during  which  assessment 
has  been  in  the  hands  of  the  Commissioners,  the  increase  in  valuation 
was  a  little  more  than  62  per  cent,  while  the  valuation  of  all  other 
property  in  the  State  increased  a  little  less  than  34  per  cent,'^*  and 
the  mileage  of  line  about  25  per  cent. 

In  its  report  for  1912,  the  Board  of  Tax  Commissioners,  in  call- 
ing attention  to  the  great  increase  in  valuation  that  had  taken  place, 
said  that  "today  the  steam  and  electric  railroads  operating  in  the 
State  of  Washington  are  assessed  higher  and  pay  a  greater  amount 
of  taxes,  measured  by  any  known  or  accepted  standard,  than  in  any 
other  state  in  the  United  States.^ ^  This  hardly  seems  credible,  but 
if  true  it  affords  a  very  strong  presumption  that  the  railroads  were 

"For    the    valuation    in    each    year    see    Fifth    Biennial    Report,    State 
Board   of    Tax    Commissioners,    p.    38. 

"Statistical   Abstract    of   the   United    States.      The   later   figures   do   not 
include  switching  and  terminal  companies. 

'^Computed   from   figures   in   Fifth  Biennial  Report  of   the   State  Board 
of    Tax    Commissioners,    p.    39. 

"Tax  Commissioners,   p.   7. 


THE  GENERAL  PROPERTY  TAX  91 

unfairly  treated.  Taking  the  figures  per  mile  of  line,  which  is  hardly 
a  fair  test,  for  the  year  ending  June  30,  1913,  which  presumably 
covers  the  taxes  of  1912,  the  railroads  paid  to  the  State  of  Washing- 
ton $769  per  mile.  This  was  exceeded  in  New  Jersey,  Rhode  Island, 
Massachusetts,  the  District  of  Columbia,  New  York,  Connecticut, 
Ohio,  and  Pennsylvania,  in  the  order  named. ^°  Considering  what 
these  exceptions  are.  they  do  not  greatly  weaken  the  conclusion  that 
the   railroads   have  just  ground   for  complaint. 

Looking  at  the  matter  from  the  point  of  view  of  percentage  of 
taxes  to  earnings,  tlie  figures  are  rather  startling.  For  four  of  the 
five  largest  systems  of  the  State  the  figures  are  as  follows  :^^ 

% 
Taxes 

Gross  Net  '7r  Taxes   to  net 

Earnings  in        Earnings  in  to  gross  Earn- 

Washington.     Washington.  Taxes.        Earnings,   ings. 

G.    N.    Ry $9,480,504  $2,379,044  $    932,450  9.84  39.20 

N.     P.     Rv 17.304,341  5,613,748  1,711,367  9.89  30.48 

C,  M.  &  St.  P.  Ry.    .  .         4,263,095  619,628  461,722  10.83  74.51 

S.,   P.   &   S.    Ry 3,632,004  1,836,753  440,174  12.12  23.97 

These  figures  certainly  seem  very  high,  even  when  allowance  is 
made  for  the  fact  that  the  last  few  years  have  been  rather  unfavorable 
for  railroad  earnings. 

The  mere  fact  that  taxes  are  high  is  not,  of  course,  conclusive 
evidence  that  the  railroads  are  not  fairly  treated.  The  railroads 
are  supposed  to  be  taxed  at  the  same  rate  as  are  other  forms  of 
property,  and  complaints  of  high  taxes  are  very  common.  A  strict 
application  of  the  general  property  tax  would  in  many  other  cases 
result  in  the  practical  confiscation  of  the  profits  on  which  the  value 
of  the  property  is  dependent.  It  is  contended,  however,  that  tlie 
ratio  of  assessed  to  true  value  is  really  very  much  higher  in  the  case 
of  the  railroads  than  it  is  in  the  case  of  other  forms  of  property. 
This  means  that  the  State  Board  of  Equalization  is  not  successful  in 
ascertaining  the  ratio  ap])licd  in  the  counties.  Notwithstanding  the 
efforts  of  the  Board,  and  especially  of  the  Tax  Commissioners,  it 
seems  possible  that  there  is  some  truth  in  the  complaint.  The  Tax 
Commissioners  themselves,  in  their  "List  of  Indictments  against  the 
General  Property  Tax,"  declare  that  it  is  "a  system  that  does  not 
permit    of    equalization    either    between    individuals,    corporations,    or 

"Statistical  Abstract  of  the  United  States,  1914,  p.  280.  The  fact  that 
the  taxes  of  terminal  and  switching  companies  are  not  included  in  these 
figures    strengtliens    rather    than    weakens    tlie    complaint    of    the    railroads. 

"Figures  in  the  first  three  columns  were  furnished  by  the  State 
Board  of  Tax  Commissioners.  The  acocunts  of  the  Washington-Oregon 
Railroad  and  Navigation  Company  are  kept  in  such  a  way  that  it  is  im- 
possible  to   make   a   similar   comparison. 


92  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

communities.""  It  is  safe  to  say  that  this  indictment  is  supported 
by  the  views  of  the  vast  majority  of  students  of  taxation  in  America. 

Assuming  that  the  complaints  of  the  railroads  are  well  founded, 
the  fault  lies  primarily  in  the  nature  of  the  system.  The  law  does 
contemplate  the  taxation  of  property  of  this  sort  at  a  higher  rate 
than  other  property  is  taxed.  Many  forms  of  property  either  cannot 
be  found,  or,  if  found,  cannot  be  correctly  valued.  The  value  of  the 
property  of  railroad  and  telegraph  companies  is  subject  to  investiga- 
tion by  two  state  commissions  that  devote  a  considerable  portion  of 
their  time  to  the  work.  While  the  property  is  complex  the  valuation 
depends  on  investigations  much  more  elaborate  and  searching  than 
are  made  in  most  other  cases.  The  corporations  owning  it  are 
relatively  few  in  number  and  are  regarded  by  many  as  "special  in- 
terests," less  willing  than  ordinary  taxpayers  to  bear  their  share  of 
the  public  burdens,  or  at  least  more  able  to  escape.  They  are  in  the 
spotlight,  and  any  concessions  made  to  them  are  likely  to  evoke  public 
criticism.  The  Board  of  Tax  Commissioners  has  had  to  fight  for  its 
life  at  every  session  of  the  Legislature  since  it  was  organized.  It 
would  be  but  natural  if  the  Commissioners  were  inclined  to  decide  in 
favor  of   "the   public"   all  doubts   that  arose. 

The  true  interest  of  the  public  is,  of  course,  justice,  rather  than 
the  collection  of  undue  amounts  from  any  one  set  of  taxpayers.  It 
is  true  that  so  far  as  shifting  of  taxes  takes  place  injustices  of  this 
sort  are  at  least  partially  remedied.  It  must  be  remembered,  how- 
ever, that  railroad  rates  are  subject  to  regulation,  and  even  when 
shifting  takes  place,  the  process  is  likely  to  be  slow  and  expensive, 
and  that  eventually  the  costs  of  shifting,  as  well  as  the  taxes  shifted, 
are  borne  by  the  public.  In  the  meantime  much  injury  may  be  done 
to  innocent  parties. 

Upon  the  whole  the  author  is  inclined  to  believe  that, 
while  political  considerations  may  possibly  have  led  to  the  imposition 
of  undue  tax  burdens  on  the  great  public  utility  corporations,  the 
main  reason  for  excessive  taxation,  if  taxation  is  really  excessive, 
is  to  be  found  in  the  fact  that  the  general  property  tax  is  more 
effectively  applied  to  this  form  of  property  than  to  most  other 
forms.  The  remedy  is  to  be  found,  not  in  a  reversion  to  the  old,  in- 
effective methods,  but  in  a  change  in  the  system.  If  this  is  at  present 
impracticable  efforts  should  be  made  to  extend  efficiency  in  assess- 
ment to  as  many   forms  of  property  as   possible,  meanwhile  making 

'*5    Tax   Commissioners,    p.    20. 


THE  GENERAL.  PROPERTY  TAX  93 

such  corrections  as  are  possible  through  the  boards  of  equalization. 
If  this  fails,  as  fail  it  almost  certainly  will,  to  secure  justice  in  tax- 
ation the  need  for  a  change  in  the  system  will  be  all  the  more  clear- 
ly demonstrated. 

§14.  If  the  taxation  of  property  is  to  be  continued  it  is  desirable 
that  the  whole  system  of  assessment  be  more  highly  centralized. 
Even  if  this  is  not  done  there  are  certain  classes  of  property  the  as- 
sessment of  which  by  the  Commissioners  is  especially  desirable.  This 
is  true  of  the  property  of  public  utility  companies  of  practically  all 
sorts.     It  is  also  true  of  registered  watercraft. 

Attention  has  already  been  called  to  the  source  of  the  chief  dif- 
ficulties in  the  assessment  of  public  utility  properties  by  the  county 
assessors.  In  the  first  place,  it  not  infrequently  happens  that  the 
same  corporation  operates  property  subject  to  State  and  property 
subject  to  local  assessment.  A  street  railway  company,  for  exam- 
ple, may  sell  electricity  for  other  purposes,  all  the  power  being  de- 
rived from  the  same  plant.  The  franchise,  which  is  property,  covers 
all  purposes.  In  the  second  place,  property,  though  subject  exclu- 
sively to  local  assessment,  may  lie  in  more  than  one  county.  Tele- 
phone properties  may  be  cited  as  an  example.  "The  local  and  long 
distance  business  is  so  intermingled  and  mixed  up  that  assessors 
have  repeatedly  protested  that  a  correct  valuation,  as  between  coun- 
ties, or  even  locally,  is  impossible. "^"^  In  the  third  place,  the  Com- 
missioners, with  their  close  relation  with  the  Public  Service  Com- 
mission and  their  greater  familiarity  with  the  work,  are  in  a  much 
better  position  to  make  the  assessment. 

That  a  change  of  this  sort  should  be  made  is  recognized  by 
the  assessors.  In  their  report  for  1910  the  Tax  Commissioners 
recommended  a  bill  providing  that  the  assessment  of  light,  water, 
heat,  and  power  properties  should  be  placed  in  their  hands.  The 
following  January  the  assessors,  in  their  annual  convention,  passed 
a  resolution  that  the  assessment  of  all  public  utilities  should  be  given 
over  to  the  Commissioners.  The  bill,  however,  failed  of  passage.  In 
1912  the  Commissioners  recommended  a  new  bill,  this  time  including 
telephones.  At  the  next  convention  of  the  assessors  this  bill  was 
endorsed.     Like  the  former  bill  it  failed  of  passage. 

The  reasons  for  state  assessment  of  registered  water  craft  are 
very  similar  to  those  for  the  state  assessment  of  railroad  rolling  stock. 
The  proper  situs  for  such  property  is  very  difficult  to  determine.    As 

"Fourth   Biennial    Report,    State   Board   of   Tax    Commissioners,    p.    18. 


94  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

a  result  it  is  very  likely  to  be  found  in  the  county  that  offers  it  the 
lowest  valuation.  "In  many  instances  the  value  put  upon  vessels  by 
the  local  assessor  does  not  reach  10  per  cent  of  the  true  value."-''  As 
in  the  case  of  public  utilities  other  than  railroads  and  telegraphs, 
legislation  to  provide  for  state  assessment  has  been  twice  recom- 
mended by  the  Commissioners,  twice  approved  by  the  assessors,  and 
has  twice  failed  of  passage. 

§15.  Upon  the  whole,  state  assessment  as  carried  out  in  Wash- 
ington seems  to  be  clearly  justified  in  theory  and  in  practice,  if  the 
more  effective  application  of  the  general  property  tax  to  certain 
classes  of  property  can  be  regarded  as  a  justification.  If  anything 
can  be  said  against  this  it  is,  so  far  as  the  available  evidence  goes, 
that  it  has  in  some  cases  led  to  excessive  valuation.  While,  however, 
it  is  impossible  to  speak  with  confidence,  it  is  the  opinion  of  the 
author  that  the  injustices  that  have  arisen  are  due  not  so  much  to 
valuation  that  is,  in  itself,  excessive  as  to  the  singling  out  of  certain 
forms  of  property  for  effective  treatment. 

It  would,  of  course,  be  impossible  to  treat  all  classes  of  property 
as  the  operating  property  of  railroads  and  telegraphs  has  been  treat- 
ed. Not  only  would  the  task  be  far  too  great  for  the  Commissioners 
themselves  to  handle,  but  there  are  classes  of  property  that  cannot 
he  effectively  reached  by  any  known  method.  What  has  been  ac- 
complished in  the  case  of  the  railroad  and  telegraph  companies  has 
been  possible  only  because  of  the  work  of  two  state  commissions,  one 
of  them  working  by  very  elaborate  and  expensive  methods.  There 
are  some  forms  of  property  to  which  similar  methods  could  be  ap- 
plied. There  are  many  to  which  they  could  not.  Doubtless  some- 
thing could  be  accomplished  by  a  better  organization  of  the  assess- 
ing machinery;  but  this   is   not  enough. 

The  experience  of  Washington  seems  to  support  the  view,  almost 
unanimously  held  by  students  of  taxation,  that  the  general  property 
tax  cannot  be  so  applied  as  to  work  justice. 

"Fifth  Biennial  Report,  State  Board  of  Tax  Commissioners,  p.   31. 


Chapter  VII. 

BUSINESS  AND  CORPORATION  TAXES 

§1.  For  the  taxation  of  corporations  and  of  business  Wash- 
ington relies  mainly  on  the  general  property  tax.  There  is  no  gen- 
eral corporation  tax  save  a  moderate  franchise  tax  on  joint  stock 
corporations  and  on  a  few  other  kinds.  There  are,  however,  a  few 
lines  of  business,  most  of  which  are  ordinarily  carried  on  by  cor- 
porations, that  are  subject  to  special  forms  of  taxation.  Express 
and  private  car  companies  pay  a  tax  on  their  gross  receipts  and 
insurance  companies  a  tax  on  their  premiums.  There  are  a  number 
of  license  payments,  some  of  which  may  be  regarded  as  taxes,  and 
the  rest  as  fees.^  In  addition  to  these  there  are,  of  course,  a  large 
number  of  fees  paid  on  special  occasions,  such  as  the  filing  of  articles 
of  incorporation,  the  taking  of  examinations  for  admission  to  the 
practice  of  certain  professions,  inspections,  etc.  With  fees,  as  dis- 
tinguished from  taxes,  we  are  not  here  concerned.  We  shall  there- 
fore leave  out  of  account  payments  that  are  primarily  fees  and  or- 
dinarily regarded  as  such,  merely  calling  attention  to  a  few  cases 
in  which  they  seem  decidedly  excessive   from  that  point  of  view. 

Even  when  this  is  done  consideration  must  be  given  to  number  of 
payments  with  which  the  State  Board  of  Tax  Commissioners  has  lit- 
tle or  nothing  to  do,  although  the  law  creating  that  body  specifically 
gives  it  the  power  and  duty  of  exercising  "general  supervision  of  the 
system  of  taxation  throughout  the  State."  The  franchise  tax  on 
corporations  in  most  cases,  and  automobile  licenses  are  in  the  hands 
of  the  Secretary  of  State;  the  Insurance  Commissioner  is  responsi- 
ble for  the  assessment  and  collection  of  the  special  taxes  on  insur- 
ance; local  officials  formerly  had  charge  of  liquor  licenses  in  the  coun- 
ties and  municipalities,  although  a  portion  of  the  proceeds  were  paid  to 
the  State.  The  Tax  Commissioners,  however,  administer  the  priv- 
ilege taxes  on  express  and  private  car  companies  and  until  recently 
attended  to  the  enforcement  of  the  state  liquor  license  taxes. 

§2.  Before  considering  the  franchise  tax  on  corporations  it 
should  be  noticed  that  the  "fees"  paid  to  the  Secretary  of  State  so 
far  exceed  the  expenses  of  the  office  that  they  should  be  regarded 
as  containing  a  considerable  measure  of  taxation.     For  the  biennium 

'For  the   distinction    between   fees   and   taxes  see  above,   p.   4. 

(95) 


96  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

ending  September  30,  1914,"  the  total  expenses  of  the  office  were 
$25,501.68.  During  the  same  period  "fees"  for  the  filing  and  re- 
cording of  articles  of  incorporation  alone  were  $82,539.65 ;  fees 
for  the  issue  of  certified  copies  amounted  to  $5,845.10;  and  for  the  re- 
instatement of  stricken  corporations  $4,560.00.  In  addition  to  these 
candidates  for  political  office  paid  $6,667.00.  It  will  be  seen  that 
leaving  out  of  account  automobile  licenses,  which  should  be  regarded 
in  part  as  fees,  and  the  franchise  tax,  the  office  was  run  at  a  profit  of 
$74,164.07. 

While,  however,  these  corporation  fees  must  be  regarded  as  con- 
taining a  considerable  element  of  taxation,  the  total  amount  received 
is  not  very  great.  Judged  by  ordinary  standards  the  charges  made 
would  hardly  be  regarded  as  specially  exorbitant.  The  highest  is 
$25  for  the  filing  of  ordinary  articles  of  incorporation,  regardless  of 
the  amount  of  capital  involved.  There  are  a  few  classes  of  corpora- 
tions for  which  the  fee  is  somewhat  smaller.  Included  in  the  total 
are  a  number  of  fees,  such  as  those  for  the  appointment  of  agents, 
which  are  not  itemized  in  the  reports. 

§3.  The  annual  franchise,  or  corporation  license,  tax  is  but 
$15  a  year  in  each  case.  With  the  exception  of  a  few  classes  special- 
ly treated,  such  as  insurance  companies,  it  is  imposed  on  all  cor- 
porations having  joint  stock  and  on  some  classes  of  corporations  not 
organized  for  profit.  It  is,  of  course,  in  addition  to  all  other  taxes, 
which  in  the  case  of  most  corporations  means  simply  the  general  prop- 
erty tax.  It  is  exclusively  a  state  tax,  none  of  the  revenue  being  dis- 
tributed to  the  localities.  For  the  biennium  ending  September  30, 
1914,   the   receipts    for   corporation   licenses   amounted   to   $297,290.* 

The  methods  of  assessing  and  collecting  this  tax  are  quite  sim- 
ple. No  notice  or  tax  bill  is  sent,  but  the  corporations  are  ex- 
pected to  make  payment  when  it  becomes  due.  Failure  to  do  so 
renders  them  liable  to  a  penalty  of  $2.50  a  year  for  the  first  two 
years.  The  Tax  Commissioners  have  authority  to  start  suit  to  col- 
lect the  tax.  Failure  to  pay  is  regarded  as  prima  facie  evidence  of 
insolvency ;  and  the  corporation  has  no  power  to  start  or  maintain 
a  suit  before  the  courts.  At  the  end  of  two  years  its  name  is  stricken 
from  the  list  kept  in  the  office  of  the  Secretary  of  State.  Upon 
proper   application   the   corporation   may   be   reenstated,   but   it  must 

'Figures  are  taken  from  the  Thirteenth  Biennial  Report  of  the  Secre- 
tary of  State   (1914),  p.  10. 

'L.OC.    cit. 


BUSINESS   AND   CORPORATION   TAXES  97 

pay  the  back  taxes,  fees,  and  penalties  and,  in  addition,  a  penalty  of 
$20  a  year   for  the   time  during  which   it  was  stricken. 

A  corporation  tax  of  $15  a  year  seems  very  moderate.  Unless, 
however,  it  is  desired  to  place  special  burdens  on  the  corporate  form 
of  business  activity  any  tax  of  this  sort,  under  the  conditions  existing 
in  Washington,  must  be  small.  Under  the  State  constitution  the 
property  of  corporations  must  be  taxed  in  the  same  way  as  is  other 
property.  In  so  far  as  the  ordinary  corporate  franchise  actually 
confers  an  advantage  it  furnishes  tax  paying  ability.  While  the  cer- 
tificate of  incorporation  might,  in  such  cases,  be  regarded  as  prop- 
erty and  taxed  as  such  it  is  not  ordinarily  done.  It  will  be  noticed, 
however,  that  in  the  case  of  properties  valued  under  the  "unit  rule" 
there  is  comparatively  little  chance  for  property  of  this  sort  to  es- 
cape. Even  in  the  case  of  manufacturing  and  mercantile  corporations 
it  seems  probable  that  other  forms  of  property  are  more  readily 
found  and  taxed  than  in  the  case  of  private  individuals  and  firms 
doing  an  equal  amount  of  business.  Upon  the  whole,  however,  when 
the  moderate  rate  of  the  franchise  tax  and  the  difficulty  of  reaching 
the  value  represented  by  incorporation  are  considered,  the  tax  can 
hardly  be  regarded  as  imposing  a  serious  burden. 

§4.  Turning  now  to  the  special  corporation  taxes,  attention 
may  first  be  given  to  those  imposed  on  insurance  companies.  Strictly 
this  is  not  a  corporation  tax,  since  the  term  "company"  is  so  broadly 
defined  as  to  include  individuals,  partnerships,  and  unincorporated 
associations  as  well  as  corporations.  As  regards  the  amount  and 
manner  of  taxation  some  distinctions  are  made,  but  these  do  not  turn 
on  the  fact  of  incorporation.  In  particular,  fraternal  insurance  is 
exempt  from  most  of  the  fees  and  taxes  that  must  be  paid  in  other 
cases. 

Before  considering  in  detail  the  taxes  imposed  there  is  one  quali- 
fication that  should  be  noted.  The  insurance  code  contains  a  "re- 
ciprocal," or  more  properly  a  retaliatory,  provision/  Where  any 
other  state  imposes  upon  the  insurance  companies  of  this  State 
greater  obligations  or  prohibitions  than  Washington  imposes  upon 
foreign  insurance  companies  the  regulations  of  that  state  must  be 
applied  to  its  own  companies. 

Insurance  corporations  are  subject  to  incorporation  expenses 
similar  to  those  imposed  in  other  cases.  These  fees,  however,  are 
in  nearly  all  cases  paid  to  the  Insurance  Commissioner  instead  of  to 

♦Insurance  Code,  Section  47. 


98  THE  bTATE  TAX  SYSTEM  OF  WASHINGTON 

the  Secretary  of  State.  In  general,  insurance  companies  must  pay 
a  fee  of  $20  for  the  filing  of  their  annual  statements  of  condition  and 
report  of  business  done  in  Washington.  Fraternal  benefit  insurance 
companies,  however,  are  exempt  from  this  fee  as  they  are  from  all 
taxes,  fees,  and  licenses  for  which  the  insurance  code  provides,  save 
only  an  annual  license  fee  of  $10.  Such  societies  as  the  Masons, 
Odd  Fellows,  etc.,  are  completely  exempt.  Title  insurance  com- 
panies are  required  to  deposit  certain  securities  with  the  State 
Treasurer  as  a  guarantee  fund,  and  to  pay  a  fee  of  one-tenth  of  one 
per  cent  of  the  value  of  such  securities.  There  are  a  few  other 
fees    of   somewhat   less   importance. 

Instead  of  the  annual  franchise  tax  insurance  companies  pay 
an  annual  fee  of  $10  for  a  certificate  of  authority  to  do  business  in 
the  State.  In  addition  to  this  there  are  a  considerable  number  of 
licenses.  There  is  an  annual  license  fee  of  $2  on  agents  and  so- 
licitors, collected  from  each  company  that  they  represent.  In  the 
case  of  non-resident  special  agents  the  fee  is  $5.  For  insurance 
adjusters  it  is  $10,  but  an  agent  of  a  duly  authorized  company  may 
do  the  work  of  an  adjuster  without  payment  of  this  fee.  "Non-ad- 
mitted" companies  are,  under  certain  circumstances,  allowed  to  do 
business  in  the  State,  but  in  such  cases  the  agent  must  pay  a  license 
fee  of  $100  and  make  the  annual  reports  on  which  the  premiums 
tax  is  based.  A  license  fee  of  $100  is  also  collected  from  insurance 
brokers.  The  license  fee  for  non-resident  special  agents  and  that 
on  adjusters  are  new,  being  authorized  by  the  legislature  of  1915. 

Leaving  out  of  account  the  fee  for  a  certificate  of  authority, 
which  is  very  much  like  the  franchise  tax  paid  by  other  corporations, 
and  the  annual  licenses,  the  fees  received  by  the  Insurance  Depart- 
ment are  far  from  sufficient  to  cover  expenses.  In  1914  these  fees 
amounted  to  $6,721.35'  The  expenses  were  $25,461.80.  Even  if 
the  fees  for  the  annual  certificates  of  authority  be  included  the  re- 
sult is  not  greatly  affected,  as  they  amounted  to  only  $3,817.00.  If 
these  and  the  annual  license  fees  be  included,  however,  the  amount 
is  $52,886.35.  It  would  seem,  therefore,  that  even  if  all  of  these 
items  are  to  be  regarded  as  primarily  fees  they  contain  a  considerable 
element  of  taxation. 

When  the  taxation  of  insurance  is  mentioned  what  is  commonly 
had  in  mind  is  the  tax  on  gross  premiums.     This  does  not,  of  course, 

'^All  figures  here  used  are   taken   or  computed   from   the   Tenth  Biennial 
Report  of  the  Insurance  Department  (1915),  pp.  12-13. 


BUSINESS   AND   CORPORATION   TAXES  »» 

apply  to  fraternal  insurance  societies,  nor  does  it  apply  to  title  in- 
surance companies,  since  the  law  provides  that  the  latter  "shall  be 
taxed  on  a  basis  of  physical  property  *  *  *  in  the  county  where 
such  property  is  located  in  accordance  with  the  general  laws  relat- 
ing to  taxation  in  this  state,  and  not  otherwise."® 

In  all  other  cases  there  is  a  tax  of  two  and  a  quarter  per  cent 
on  all  premiums  collected  or  contracted  for.  Previous  to  1915,  how- 
ever, this  tax,  in  the  case  of  life  insurance  companies,  was  only  two 
per  cent.  Life  insurance  companies  now  receive  less  favorable  treat- 
ment than  do  those  engaged  in  other  forms  of  insurance,  since  in  com- 
puting gross  premiums  they  are  allowed  to  deduct  only  the  amounts 
paid  as  premiums  to  "admitted"  companies  for  reinsurance,  whereas 
others  are  allowed  to  deduct  these  and  the  amounts  paid  to  policy 
holders  as  returned  premiums.  In  all  cases  the  tax  is  reduced  to 
one  per  cent  if  the  company  has  as  much  as  fifty  per  cent  of  its  as- 
sets invested  in  bonds  or  warrants  of  the  State  or  its  subdivisions, 
in  taxable  property  within  the  State,  or  in  first  mortgages  upon  im- 
proved real  estate  within  the  State.  This  provision,  however,  would 
not  seem  to  be  of  great  importance  in  the  case  of  insurance  com- 
panies doing  business  all  over  the  country. 

No  difficulty  is  experienced  in  connection  with  the  collection  of 
the  tax.  Ordinarily  the  companies  themselves  calculate  the  amount 
and  send  in  a  cheque  with  their  annual  reports.  In  some  cases,  how- 
ever, they  wait  for  the  verification  of  the  report  before  making  pay- 
ment. The  law  provides,  however,  that  in  case  of  failure  to  make 
the  report  or  to  pay  the  tax  within  thirty  days  of  the  time  specified, 
the  corporation  shall  be  subject  to  a  fine  of  $25  for  each  additional 
day  of  delinquency.  The  tax  may  be  collected  by  distraint;  and 
the  Insurance  Commissioner  may  revoke  the  certificate  of  authority 
until  taxes  and  fines  are  fully  paid. 

The  tax  on  grf^iS  premiums  yields  a  considerable  revenue.  In 
1914  the  life  insurance  companies  paid  $148,635.02;  the  fire  insur- 
ance $133,061.78;  miscellaneous,  $36,781.40;  and  "unauthorized" 
companies,  $2,833.86;  making  a  total  of  $321,315.06. 

§5.  The  singling  out  of  any  particular  class  of  business  for 
special  taxation,  where  the  purpose  is  really  taxation  and  not  reg^u- 
lation  or  restriction,  may  be  justified  on  one  of  two  main  grounds: 
either  the  business  cannot  be  as  effectively  reached  by  the  ordinary 
methods   as   can   other  lines,  or  it   represents   a   special   measure   of 

•Insurance  Code,  Section  204. 


100  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

tax  paying  ability.  Where  any  class  of  business  involves  special  ac- 
tivity on  the  part  of  the  state,  it  may  be  legitimately  required  to 
make  payments  for  the  defraying  of  these  expenses;  but  such  pay- 
ments are  at  least  somewhat  in  the  nature  of  fees.  Those  who  con- 
demn the  taxation  of  insurance — and  they  are  very  many — commonly 
admit  the  legitimacy  of  fees  that  are  only  sufficient  to  cover  the  cost 
of  supervision.  Taxes  in  Washington  are  far  in  excess  of  this 
amount. 

If  it  be  desirable  to  tax  insurance  as  heavily  as  other  lines  of 
business  representing  as  much  wealth  are  taxed,  it  must  be  admitted 
that  the  general  property  tax  is  in  their  case  a  particularly  bad  fail- 
ure. Though  possessed  of  enormous  assets  there  is  comparatively 
little  that  the  property  tax  can  reach.  Their  investments  are  large- 
ly in  forms  that  are  exempt  in  this  State ;  and  if  they  were  not  ex- 
empt it  would  be  difficult  to  say  just  how  much  of  the  assets  should 
be  regarded  as  within  the  jurisdiction  of  the  State.  Unless,  there- 
fore, special  forms  of  taxation  were  adopted  it  would  seem  that  the 
insurance  companies,  notwithstanding  their  great  wealth  and  the 
large  amount  of  business  done,  would  pay  very  little  in  the  way  of 
taxes. 

It  will  hardly  be  contended  that  the  insurance  companies  repre- 
sent any  special  measure  of  tax  paying  ability.  On  the  contrary,  lack 
of  ability  is  commonly  urged  as  a  reason  for  exemption  or  at  least 
for  great  lenience.  Here  a  distinction  must  be  made.  When  the 
business  is  carried  on  by  a  joint  stock  company,  organized  for  profit, 
there  would  seem  to  be  no  reason  for  specially  lenient  treatment.  The 
insurance  business,  however,  is  often  carried  on  on  the  mutual  plan. 
In  such  cases,  it  is  argued,  insurance  is  not  a  profit  making  insti- 
tution. Its  function  is  to  distribute  losses,  so  that  the  burden  will 
fall  where  it  can  best  be  borne.  Life  insurance  companies  are  very 
commonly  mutual,  and  even  when  they  are  joint  stock  the  capitaliza- 
tion is  as  a  rule  relatively  small  and  dividends  on  the  stock  are  lim- 
ited. Other  forms  of  insurance,  especially  fire  insurance,  are  like- 
wise very  frequently  provided  on  a  mutual  basis.  In  the  case  of 
fraternal  insurance,  conducted  on  the  assessment  plan,  the  validity 
of  the  argument  seems  to  be  admitted  by  our  laws.  It  is  argued 
that  even  when  the  fraternal  features  are  absent,  and  fixed  premiums 
are  collected  the  same  principles  apply.  It  is  concluded  that  mutual 
insurance  at  least  should  be  exempt  from  special  forms  of  taxation. 


BUSINESS   AND   CORPORATION   TAXES  101 

To  this  it  is  replied  that  life  insurance  at  least  is  often  used 
as  a  form  of  investment  through  the  use  of  endowment  policies  and 
the  like;  and  that  there  is  no  reason  why  this  form  of  investment 
should  be  specially  favored.  Passing  by  the  contention  that  insur- 
ance is  so  desirable  from  a  social  point  of  view  that  it  should  receive 
a  measure  of  "protection,"  it  should  be  noticed  that  the  argument  in 
regard  to  investment  has  little  application  under  the  conditions  exist- 
ing in  this  State,  since  in  practically  all  other  cases  investment  se- 
curities are  not  property  for  the  purpose  of  taxation.  The  reasons 
for  this  policy  are  considered  elsewhere.^  Here  it  need  only  be 
pointed  out  that  so  far  as  justice  is  concerned  the  argument  in  favor 
of  the  exemption  of  securities  applies  with  at  least  undiminished 
force  in  the  case  of  insurance. 

The  chief  justification  for  the  taxation  of  mutual  insurance,  if 
there  be  any  justification,  is  to  be  found  in  the  fact  that  insurance 
companies  are  productive  in  the  sense  that  they  render  a  valuable 
service.  This  may  be  merely  the  distribution  of  risks  or  of  losses, 
but  it  is  nevertheless  a  real  service.  Those  who  take  out  insurance 
policies  are  presumably  better  oflF  than  they  would  otherwise  be. 
From  this  point  of  view  all  insurance  companies  may  be  regarded  as 
creating  value,  and  therefore  tax  paying  ability.  Upon  the  whole, 
however,  the  taxing  of  insurance  premiums  seems  to  lack  adequate  jus- 
tification. 

The  laws  in  regard  to  the  taxation  of  insurance  companies  have, 
of  course,  no  application  to  the  system  of  compulsory  industrial  in- 
surance that  is  carried  on  by  the  State  itself.  Nor  can  the  payments 
which  employers  are  required  to  make  on  account  of  it  to  be  re- 
garded as  taxes.  They  are  paid  into  the  "accident"  fund  which  is 
intended  to  be  "neither  more  nor  less  than  self  supporting,  exclusive 
of  the  expense  of  administration."^  With  this  form  of  insurance 
the  Insurance  Department  of  the  State  has  nothing  to  do. 

§6.  The  laws  providing  for  "privilege  taxes"  on  the  gross  re- 
ceipts of  express  and  private  car  companies  were  passed  by  the 
legislature  of  1907  on  the  recommendation  of  the  State  Board  of 
Tax  Commissioners.  As  in  the  case  of  insurance  the  term  "com- 
pany" is  very  broadly  defined.  The  statutes  relating  to  express 
and  private  car  companies  are  substantially  identical,  save  only  that 
the  rate  is  five  per  cent  for  the   former  and  seven  per  cent  for  the 

'pp.   26-7. 

'Workman's  Compensation  Act  (1911),  Section  4. 


102  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

latter.  The  law  specifically  provides  that  the  tax  shall  be  in  addition 
to  the  general  property  tax  and  not  in  lieu  of  it. 

Express  companies  are  defined  as  those  "engaged  in  the  business 
of   conveying   to,    from,   or   through   this    state,   or   any    part   thereof 

*  ^  *  any  articles  by  express  service  as  distinguished  from  the 
ordinary  freight  lines  of  transportation  of  merchandise  and  property. 

*  *  *."  The  tax  is  collected  only  from  the  large  organizations 
commonly  known  as  express  companies,  no  account  being  taken  of 
local  "express"  or  "transfer"  companies.  This  means  that  it  falls 
upon  but  five  companies:  the  Western,  the  American,  the  Northern, 
the  Great  Northern,  and  the  Wells  Fargo. 

A  private  car  company  is  defined  as  one  operating  freight  cars 
over  any  railroad  line  or  lines  within  the  State  which  it  does  not 
itself  own  or  lease.  The  act  therefore  applies  not  only  to  companies 
that  are  primarily  engaged  in  this  business,  but  to  industrial  com- 
panies that  make  use  of  their  own  cars.  It  applies,  however,  only 
to  freight  cars.  Most  of  the  great  railroad  companies  own  the  sleep- 
ing, dining,  and  observation  cars  used  on  their  lines.  At  the  time  the 
Commissioners  recommended  the  adoption  of  the  tax  they  found 
that  there  were  only  eight  Pullman  cars  operated  in  the  State  and 
that  these  were  already  adequately  taxed." 

The  reason  for  the  tax  in  both  cases  appears  to  have  been  the 
belief  that  the  companies  were  escaping  their  fair  share  of  the  tax 
burden.  The  express  companies  had  previously  been  taxed  only 
on  their  tangible  property,  consisting  of  such  things  as  office  furni- 
ture, horses,  and  delivery  wagons. ^°  In  1906  the  Northern  Pacific 
(now  the  Northern)  Express  Company,  the  largest  of  the  three 
then  doing  business  in  the  State,  was  assessed  at  $26,841.25.^^  Its 
gross  receipts  for  business  done  wholly  within  the  State,  no  account 
being  taken  of  that  beginning  or  ending  elsewhere,  were  $152,654.39. 
The  Great  Northern  Express  Company  was  assessed  at  $16,187.50, 
and  its  gross  receipts  from  state  business  were  $163,266.73.  The 
Pacific  Express  Company  was  assessed  at  $3,451.00,  its  gross  re- 
ceipts from  state  business  being  $46,135.00.  Taxed  only  on  their 
tangible  property,  all  the  express  companies  paid  in  1906  for  all  pur- 
poses only  $451.37,  and  in  1907,  $750.26.  In  1913,  the  last  year 
for  which  the  figures  are  available,  the  express  companies  paid  under 

"1  Tax  Commissioners,  p.  120. 
">Ibid.,   p.    105. 

"These  and  the  following  figures  are  taken  from  the  Biennial  Reports 
of  the  State  Board  of  Tax  Commissioners. 


BUSINESS  AND   CORPORATION   TAXES  103 

the  general  property  tax  but  $1,080.89.  At  the  time  of  their  investi- 
gation the  Commissioners  found  that  the  private  car  companies  had 
previously   paid   no  taxes   whatever   in  this   State.'" 

Beginning  in  1908,  the  first  year  in  which  the  privilege  taxes 
were  imposed,  the  tax  on  the  gross  receipts  of  express  companies 
has  increased  from  $41,977.45  to  $58,031.84.  The  yield  of  the  tax 
on  private  car  companies  has  been  small.  During  the  same  period 
it  increased  from  $595.86  to  $1,455.94.  In  individual  cases  it  is 
ridiculously  small.  In  1914  the  Garden  City  Milling  Company 
paid  a  tax  of  four  cents,  and  ten  of  the  forty-five  companies  paid  less 
than  $1  each.  Only  five  paid  more  than  $100,  the  largest  being 
$311.18  paid  by  the  Union  Tank  Line. 

The  privilege  taxes  are  assessed  by  the  State  Board  of  Tax 
Commissioners  in  much  the  same  way  as  are  the  taxes  on  the  operat- 
ing property  of  railroads  and  telegraph  companies.  The  companies 
are  required  to  file  sworn  declarations,  covering  the  year  ending 
April  1st.  In  this  case  there  is  a  penalty  of  $500  for  failure  to  file 
the  declaration  and  an  additional  penalty  of  $100  a  day  for  delay 
after  April  30th.  These  declarations  are  checked  by  reference  to 
the  findings  of  the  Public  Service  Commission,  and  by  hearings  to 
which  the  companies  are  entitled  to  send  representatives.  The  Com- 
missioners have  the  power  to  summon  witnesses  and  to  examine 
books  and  papers.  Since  only  the  receipts  from  business  beginning 
and  ending  in  the  State  are  taxed  there  is  no  special  difficulty  in 
regard  to  the  distinction  between   interstate  and   intrastate  business. 

The  Commissioners,  having  ascertained  the  gross  receipts  on 
state  business  for  each  of  the  companies,  make  a  report  to  the  State 
Treasurer,  who  computes  and  collects  the  tax.  In  this  case,  as  in 
that  of  the  general  property  tax,  interest  at  the  rate  of  fifteen  per 
cent  a  year  is  charged  on  delinquent  taxes. 

For  several  years  the  companies  paid  the  privilege  taxes  without 
serious  protest.  In  1913  the  Northern  Express  and  the  Great  North- 
ern Express  companies  carried  the  matter  to  the  courts,  alleging 
that  the  tax  was  unconstitutional,  being  an  interference  with  inter- 
state commerce.  The  Superior  Court  of  Thurston  County  took  this 
view  of  it  and  the  decision  was  affirmed  by  Department  No.  1  of 
the  Supreme  Court. '^  In  a  rehearing  by  the  Supreme  Court,  sitting 
en  banc,  the  cases  of  the  two  companies  being  combined,  the  deci- 

>=Tax  Commissioners   (1908),  p.  13. 
"76  Wash.  636. 


104  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

sion  was  reversed.^''  All  the  companies  concerned,  with  two  relatively 
small  exceptions  over  which  the  State  cannot  exercise  jurisdiction, 
have  now  paid  the  tax,  the  Northern  and  the  Great  Northern  Ex- 
press Companies  doing  so  under  formal  protest. 

The  decision  of  the  State  Supreme  Court,  upholding  the  act, 
was  handed  down  in  a  divided  court,  there  being  four  separate  opin- 
ions, one  concurring  and  two  dissenting.  The  act  was  upheld  on  the 
ground  that  the  tax  was  levied  only  on  the  gross  receipts  from  busi- 
ness done  entirely  within  the  State,  the  interstate  companies  being 
under  no  obligation  to  do  this  business.  The  dissenting  justices  ob- 
jected to  the  view  that  an  express  company  might  refuse  to  do  an  in- 
trastate business,  and  one  of  them  argued  that  the  act  applies  not 
only  to  such  business,  but  also  to  the  State's  share  of  the  interstate 
business. 

§7.  There  is  perhaps  no  form  of  business  in  the  United  States 
that,  where  it  is  legally  permitted  to  exist,  is  more  commonly  subject 
to  license  taxation  than  that  of  dealing  in  alcoholic  liquors.  Wash- 
ington has  heretofore  derived  a  very  considerable  revenue  from  this 
source,  notwithstanding  the  fact  that  for  some  years  a  system  of  local 
option  has  prevailed  and  many  parts  of  the  State  have  been  "dry." 
In  1914,  however,  an  initiative  law  providing  for  state-wide  pro- 
hibition after  January  1,  1916,  was  passed  by  a  large  majority.  It 
will  be  worth  while,  however,  to  consider  briefly  the  former  situation. 

Incorporated  cities,  towns,  and  villages  had  the  exclusive  right  to 
regulate  or  prohibit  the  sale  of  alcoholic  liquor  within  their  corporate 
limits.  Outside  of  these  limits  similar  power  was  vested  in  the  coun- 
ties. In  either  case,  however,  if  licenses  were  issued  a  tax  of  not 
less  than  $300  nor  more  than  $1,000  a  year  was  imposed.  Of  this, 
ten  per  cent  went  to  the  State,  and  no  license  might  be  issued  until 
the  State's  share  was  paid.  In  1914  the  State  received  $131,179.34 
from  this  source.  ^'^ 

In  addition  to  the  local  liquor  license  taxes  there  was  a  state  tax 
of  $25  a  year  imposed  on  all  dealers,  including  steamships  or  other 
vessels,  dining  cars,  buffet  cars,  etc.  Where  the  cars  were  operated 
partly  within  and  partly  without  the  State  the  number  of  licenses 
had  to  be  equal  to  the  average  number  of  such  cars  within  its  bound- 
aries.   Receipts  from  this  source   for  the  year  ending  September  30, 

"80  Wash.  309. 

"Figures  furnished   by  State   Treasurer. 


BUSINESS  AND   CORPORATION   TAXES  105 

1914,  amounted  to  $59,462.26.'^  During  the  last  few  years  they 
showed  a  tendency  to  diminish,  due,  no  doubt,  to  the  increase  in 
the  number  of  "dry"  localities. 

The  hardship  resulting  from  the  loss  of  revenue  from  liquor 
licenses  would  be  more  apparent  than  real  if  there  were  no  consti- 
tutional difficulties  in  the  way  of  adopting  a  system  of  taxation  suit- 
ed to  modern  conditions.  Perhaps  it  will  prove  so  even  as  things 
are.  The  taxes  collected  by  the  State  and  its  subdivisions  must,  with 
a  few  qualifications  that  are  of  little  or  no  importance  in  this  con- 
nection, come  from  the  incomes  of  the  people.  There  is  no  reason 
for  thinking  that  the  revenues  needed  will  be  increased  by  prohibi- 
tion, or  that  the  incomes  of  the  people  will  be  materially  reduced. 
Some  capital  has  doubtless  been  lost  and  it  is  possible  that  some  has 
left  the  State.  The  amount  of  this,  however,  should  not  be  exag- 
gerated. Much  of  the  property  used  in  the  liquor  business  could 
be  used  in  other  lines  of  industry.  If  the  prohibitionists  are  right 
in  thinking  that  the  liquor  business  is  unfavorable  to  health  and 
efficiency  it  may  be  expected  that  the  incomes  of  the  people  will  be 
increased.  It  must  be  admitted,  however,  that  it  is  not  easy  to 
find  taxes  that  are  as  easily  levied  and  collected  with  as  little  op- 
position as  are  liquor  licenses.  This,  however,  is  an  administrative 
problem:  it  does  not  mean  that  the  people  will  have  to  pay  more 
taxes  nor  that  they  will  have  less  with  which  to  pay  them.  Even 
the  administrative  problem  would  be  less  difficult  if  it  were  not  for 
the  present  defective  system  of  taxation. 

§8.  Automobile  licenses  can  be  regarded  as  only  in  part  busi- 
ness taxes.  They  will,  however,  be  considered  in  this  connection; 
partly  because  they  seem  to  be,  to  some  extent,  intended  to  be  busi- 
ness taxes ;  and  partly  because  they  are  not  of  sufficient  importance 
to  be  separately  considered  and  there  is  no  other  group  of  taxes 
with   which   they   can    be   more   appropriately    classed. 

Heretofore  automobiles  have  been  taxed  at  a  flat  rate  of  $2 
for  each  machine.  In  some  respects  this  charge  seems  more  like  a 
fee  than  a  tax.  For  the  biennium  ending  September  30,  1914,  how- 
ever, the  total  amount  received  was  $106,246,^^  whereas,  as  we  have 
already  seen,  the  total  expenses  of  the  office  of  the  Secretary  of  State, 
who  is  responsible  for  their  collection,  were  only  $25,501.68.  Even 
if   a  large   part   of   these   expenses   are   attributed   to   the   automobile 

'«5  Tax  Commissioners,  p.  37. 

"13th  Biennial  Report  of  the  Secretary  of  State  (1914).  p.  10. 


106  THE  STATE  TAX  SYSTEM  OF  "WASHINGTON 

department,  it  would  seem  that  the  automobile  licenses  contain  a 
large    element   of   taxation. 

The  Legislature  of  1915  adopted  a  fairly  elaborate  system  of 
automobile  licenses.  Without  giving  the  schedule  in  full  it  may 
be  said  that  there  are  seven  classes  of  automobiles,  the  classification 
based  partly  on  the  kind  of  machine  and  partly  on  the  use  to  which 
it  is  put.  On  motor  cycles  there  is  a  flat  rate  of  $2.50;  private 
"automobiles"  are  subclassified  on  the  basis  of  horse  power,  the  rates 
being  $3,  $5,  and  $7.50;  on  "automobiles  for  hire"  the  rate  is  fifty 
cents  per  horse  power;  motor  trucks  are  subclassified  on  the  basis  of 
capacity,  the  rates  being  $10,  $15,  $20,  and  $25,  with,  apparently, 
no  provision  for  those  having  a  capacity  of  more  than  five  tons.  On 
auto-stages  the  rate  is  fifty  cents  per  horse  power  and  $1  per  pas- 
senger capacity ;  on  demonstration  machines  the  rate  is  $3  for  motor 
cycles  and  $5  for  all  others.  Except  for  motor  cycles  there  is  an 
additional  demonstration  license  of  $3.  Private  automobiles  may  be 
licensed  for  hire  for  ten  days  or  less  on  payment  of  a  license  of 
$1.  In  addition  to  these  there  are  small  fees  for  duplicate  number 
plates  and  licenses  and  for  the  transfer  of  licenses.^* 

The  new  system  may  be  expected  to  yield  a  considerable  amount 
of  revenue.  Licenses  are  to  be  collected  by  the  Secretary  of  State 
through  the  county  auditors,  and  turned  over  by  him  to  the  State 
Treasurer.  From  these  receipts  the  general  fund  is  to  be  reimbursed 
for  expenses  incurred  and  the  remainder  is  to  be  turned  into  the 
permanent  highway  fund,  these  payments  to  be  in  addition  to  fixed 
appropriations. 

It  will  be  readily  seen  that,  from  one  point  of  view,  automo- 
bile licenses  might  be  regarded  as  fees  for  the  use  of  the  roads. 
The  maintenance  of  highways,  however,  is  commonly  regarded  as  one 
of  the  general  functions  of  the  State.  Upon  the  whole  it  is  better 
to  regard  such  licenses  as  for  the  most  part  taxes  on  particular 
classes  of  citizens  who  are  supposed  to  have  special  tax  paying  abil- 
ity and  also  to  receive  a  special  benefit  from  the  way  in  which 
most  of  the  money  thus  received  is  expended. 

There  are,  of  course,  many  other  cases  in  which  charges  are  im- 
posed by  the  State  upon  business.  These  are  so  largely  in  the  nature 
of  fees  or  prices  that  a  discussion  of  them  in  a  work  of  this  sort  is 
unnecessary.  Special  mention  should  be  made  of  the  fishing  industry 
in  which  there  are  a  considerable  number  of  fees. 

"Session  Laws  of  1915,  Ch.  142. 


Chapter  VIII. 

THE  INHKRITANCE  TAX 

§1.  The  taxation  of  inheritances,  using  the  term  in  a  broad 
sense,  has  grown  greatly  in  favor  among  American  commonwealths 
during  the  last  generation  or  so.  The  Washington  inheritance  tax 
law  dates  back  to  1901.  It  was  considerably  revised  in  1907,  though 
no  changes  in  the  rates,  that  have  stood  the  test  of  constitutionality, 
were  made.  Previous  to  its  administration  by  the  State  Board  of 
Tax  Commissioners,  beginning  in  1906,  the  amount  of  revenue  pro- 
duced was  small.  It  has  increased  greatly  since  that  time  and  may 
be  expected  to  increase  in  the  future,  though  at  a  slower  rate. 

In  providing  for  the  taxation  of  inheritances  the  Legislature  has 
a  comparatively  free  hand.  The  tax  is  not  technically  on  property, 
but  on  successions ;  and  the  constitutional  provision  in  regard  to  the 
uniform  taxation  of  property  has  no  application.  It  is  not  a  tax  on 
interstate  commerce  nor  on  the  instrumentalities  thereof,  and  some  of 
the  most  important  constitutional  difficulties  that  arise  in  the  case  of 
business  taxation  can  here  cause  no  trouble.  This  does  not  mean 
that  there  are  no  constitutional  restraints,  but  they  are  much  less 
frequent  than  in  the  cases  of  the  other  taxes  that  we  have  considered. 

§2.  Allowing  for  a  few  exemptions,  the  Washington  inherit- 
ance tax  is  intended  to  reach  all  cases  of  the  succession  to  property 
resulting  from  the  death  of  the  owner,  so  far  as  the  State  has  any 
control  in  the  matter.  The  term  "inheritance"  is,  of  course,  inter- 
preted as  including  bequests  and  devises.  The  law  applies  also  to 
deeds,  grants,  sales,  or  gifts  made  in  contemplation  of  death.  When 
real  estate  is  left  to  direct  heirs  for  a  term  of  years  or  for  life  with 
the  provision  that  it  shall  then  go  to  collateral  heirs,  the  value  of 
the  term  or  life  estate  must  be  appraised  and  the  tax  paid  upon  it; 
and  when  the  collateral  heirs  come  into  the  property  they  must  pay 
the  tax  in  the  same  way  as  if  it  had  passed  to  them  in  the  first 
place.  If,  however,  they  wish  to  pay  at  the  time  of  the  death  of  the 
testator,  the  present  value  of  their  interest  is  computed  and  the 
tax  paid  on  that  basis.  This  part  of  the  statute  is  very  faultily 
drawn.  Unless  the  intention  is  to  grant  exemptions — and  this  ap- 
parently is  not  the  case — the  distinction  between  direct  and  collateral 
heirs   is   cumbersome  and   uncertain.       The   Tax   Commissioners   rec- 

(107) 


108  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

ommendcd    to    the   last   session    of   the    Legislature   that   the   law   be 
amended   to   remedy   the    difficulty,   but   nothing   was   done. 

One  of  the  chief  faults  of  the  inheritance  tax,  as  administered 
by  American  commonwealths,  is  double  taxation,  since  many  of  them 
impose  it  wherever  possible.  In  this  respect  Washington  is  a  griev- 
ous offender.  The  tax  is  imposed  when  the  property  is  in  the  State 
and  distributed  under  its  laws.  Except  in  the  case  of  real  estate 
passing  in  fee,  the  tax  is  imposed  when  the  property  is  located  else- 
where but  the  decedent  was  domiciled  in  Washington  at  the  time 
of  his  death.  Even  if  the  decedent  was  a  non-resident  and  the  prop- 
erty located  outside  of  the  State  the  tax  is  imposed  when  it  is  brought 
in  and  becomes  subject  to  the  courts  of  the  State  for  distribution.  Do- 
mestic corporations  are  forbidden  to  transfer  securities  subject  to 
the  tax  at  the  request  of  foreign  executors,  administrators,  or  trus- 
tees until  payment  has  been  made  under  penalty  of  themselves  being 
liable.  Finally,  safe  deposit  companies,  banks,  and  other  corporations 
or  persons,  holding  securities,  property,  or  assets  are  forbidden  to 
transfer  them  to  non-resident  executors,  administrators,  or  trustees 
under  penalty  of  themselves  being  liable. 

§3.  While  students  of  taxation  are  generally  agreed  that  but 
one  state  should  collect  the  inheritance  tax  on  the  same  property 
there  is  some  difference  of  opinion  as  to  which  it  should  be  where 
several  put  in  a  claim. ^  It  is  ordinarily  conceded  that  in  the  case 
of  real  estate  the  tax  should  be  imposed  by  the  state  in  which  the 
property  is  located ;  but  in  the  case  of  personal  property  there  are 
three  or  four  possible  claimants. 

One  view  is  that  since  the  tax  is  laid  on  succession  it  should  be 
imposed  only  by  the  state  under  the  laws  of  which  the  privilege  is 
secured.  This,  in  the  case  of  real  estate,  is  the  one  in  which  it  is 
located ;  in  the  case  of  personal  property  the  one  in  which  the  de- 
cedent was  domiciled."  This  view  seems  reasonable.  At  the  same 
time  it  must  be  remembered  that  it  is  not  property  but  persons  that 
owe  taxes.  The  state  in  which  the  recipient  of  the  inheritance  lives 
has  a  claim  upon  him  to  pay  taxes  according  to  his  ability,  and  this 
ability  is  increased  by  reason  of  the  inheritance.  The  state  in 
which  even  personal  property  is  located  has  some  claims  upon  the 
owner,  since  the  property  is  under  the  protection  of  its  laws. 

'For  a  good  discus.sion   of  the  subject,  showing  several  different  points 
of  view,   see   6   National   Tax   Asociation,    pp.    283-320. 

^Report   of  the   Committee   on   Double   Taxation  and   Situs   for   Purposes 
of    Taxation,    8    National    Tax    Association    (1914),    p.    235. 


THE   INHERITANCE  TAX  109 

To  reach  a  satisfactory  conclusion  would  require  a  somewhat 
deep  theoretical  study. ^  As  a  practical  solution  of  the  question  it 
has  been  suggested  that  a  compromise  be  made.  Upon  any  particular 
compromise,  however,  it  is  difficult,  and  perhaps  impossible,  to  secure 
agreement.  The  committee  of  the  International  Conference  on  State 
and  Local  Taxation  appointed  to  draw  up  a  model  inheritance  tax 
law  recommended  that  the  tangible  property  be  taxed  where  located 
and  the  intangible  property  at  the  domicile  of  the  decedent.* 

This  suggestion,  like  the  one  that  the  tax  should  be  laid  by  the 
state  in  accordance  with  whose  laws  the  property  devolves,  would, 
if  accepted,  do  away  with  the  evil  of  double  taxation.  The  difficulty 
is  that  either  of  these  plans  would  be  more  favorable  to  the  older 
and  wealthier  states  than  to  the  others,  since  so  much  of  the  prop- 
erty in  the  newer  and  less  developed  states  is  owned  by  corporations 
whose  stock  is  held  by  non-residents.  These  states  are  naturally 
unwilling   to   consent   to   any   such   arrangement. 

While  no  really  satisfactory  conclusion  seems  to  be  at  hand, 
it  should  be  emphasized  that  the  question  is  really  a  moral  one. 
In  practice  it  would  seem  that  a  very  important  consideration  has 
been  that  the  states  have  needed  the  money  and  the  inheritance 
tax  furnishes  an  easy  way  of  getting  it.  The  strength  of  this  feel- 
ing is  in  part  due  to  the  very  defective  systems  of  taxation  already 
in  use  and  in  part  to  the  fact  that  the  revenues  needed  are  so  large 
that  any  system  of  taxation  would  seem  burdensome.  One  of  the 
chief  functions  of  the  state,  however,  is  to  secure  justice;  and  the 
present  arrangements  are  clearly  unjust.  More  discussion  is  need- 
ed; but  it  should  be  guided  to  a  greater  extent  by  a  desire  for  jus- 
tice and  to  a  less  extent  by  a  desire  for  the  money. 

There  is  one  step  in  the  right  direction  which  can  be  taken 
without  waiting  for  agreement.  Whatever  arrangements  a  state  makes 
should  be  such  that  if  adopted  by  all  double  taxation  would  not  re- 
sult. If,  for  example,  a  state  taxes  tangible  property  within  its  bor- 
ders when  left  by  a  non-resident,  it  should  not  tax  tangible  property 
located  elsewhere  but  left  by  a  resident  decedent.  In  this  respect  the 
laws  of  Washington  are  in  great  need  of  reform. 

§4.  W^hile  the  W^ashington  law  is  far  reaching  there  are  a 
few  exemptions.  Bequests  of  property  within  the  State  for  the 
relief  of  aged,  indigent  and  poor  people ;  for  the  maintenance  of  the 

'On    the   whole   question    of   double    taxation   see    Seligman,    "Essays   In 
Taxation"    (Sth   edition),   Ch.   TV. 

♦4  National  Tax  Association   (1910),  p.  284. 


110  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

sick  or  maimed;  or  for  the  support  or  education  of  orphans  or  in- 
digent children  are  entirely  exempt.  Besides  this  an  exemption  of 
$10,000''  is  allowed  for  direct  heirs.     There  are  no  other  exemptions. 

That  part  of  the  statute  which  deals  with  the  exemption  of 
charitable  bequests  could  be  greatly  improved.  It  is  not  charitable 
institutions  that  are  exempt,  but  bequests  for  a  very  limited  number 
of  purposes.  If  property  be  left  to  an  institution  that  is  primarily 
charitable,  but  has  other  purposes  than  those  specifically  mentioned, 
the  question  arises  as  to  whether  or  not  the  property  will  be  used 
exclusively  for  the  prescribed  purposes.  If,  for  example,  it  be  left 
to  a  hospital  that  receives  a  large  number  of  free  patients,  but  makes 
a  charge  to  those  that  are  able  to  pay,  this  question  arises.  In  prac- 
tice the  law  seems  to  be  administered  in  the  light  of  reason.  Under 
any  reasonable  interpretation  the  exemption  is  very  narrow.  There 
are  many  institutions  that  are  founded  for  other  purposes  than  those 
mentioned,  are  maintained  solely  for  the  public  welfare,  and  are  al- 
most altogether  dependent  for  their  support  on  gifts  and  endow- 
ments. Inheritance  tax  laws  commonly  provide  for  the  exemption 
of  religious,  educational,  and  charitable  institutions ;  but  here,  with 
the  exceptions  already  noticed,  they  are  taxed  at  a  rate  varying  from 
six  to  twelve  per  cent.  Apparently  even  a  bequest  to  a  state  insti- 
tution would  be  taxed.  This  has  actually  happened  in  the  case  of 
a   school   district. 

The  exemption  of  $10,000  to  direct  heirs  would  seem  rather 
small  where  the  widow  is  entirely  dependent  on  property  left  by 
the  husband,  were  it  not  for  one  important  fact  which  is  commonly 
overlooked  in  discussions  of  the  inheritance  tax.  Property  acquired 
by  either  husband  or  wife,  subsequent  to  marriage,  except  that  ac- 
quired by  gift,  bequest,  devise,  or  descent,  with  rents,  issues,  and 
profits  thereof,  is  community  property.^  Upon  the  death  of  either 
party  the  survivor  becomes  the  owner  of  one-half  of  it,  and  this 
half  is  not  subject  to  the  inheritance  tax,  though  it  must  bear  its 
share  of  the  costs  of  closing  the  estate.  Minor  children,  of  course, 
have  no  claim  on  the  community  property,  and  where  they  are  left 
orphans  the  exemption  seems  small.  In  other  cases  it  seems  some- 
what larger  than  is  necessary.  It  must  be  remembered,  however, 
that  for  this  class  of  heirs  the  tax  on  amounts  in  excess  of  the  exemp- 

»In  connection  with  the  tahles  published  in  the  volumes  of  the  Na- 
tional Tax  Association  (IV,  Z89;  V,  307;  VI,  293)  it  is  stated  that  there 
is  an  exemption  of  $15,000  to  the  widow  and  $10,000  to  each  other  lineal 
descendant.      This    is    clearlv    an    error. 

•Rem.  and   Bal.   Code,  Vol.   II,   Sections   5915-5917. 


THE    INHERITANCE    TAX  111 

tion  is  at  present  only  one  per  cent.  If,  therefore,  the  amount  in- 
volved were  as  much  as  $20,000  the  tax  would  be  only  one-half  of 
one  per  cent. 

There  is,  however,  one  fault  that  would  be  serious  if  the  rate 
were  at  all  high.  The  exemption  is  not  granted  on  each  share,  but 
on  the  entire  property  passing  to  heirs  of  this  class, '^  This  may  be 
good  law,  but  it  is  wrong  in  principle.  The  tax  should  rightfully  be 
regarded  as  resting  on  the  recipients  of  the  property. *  The  exemp- 
tion is  best  justified  on  the  ground  of  the  hardship  involved  for  those 
who  previously  had  some  claim  on  the  decedent  and  now  receive  only 
a  small  sum  from  his  estate.  It  would  seem,  therefore,  that  the 
exemption  to  each  should  depend,  not  on  the  size  of  the  estate,  but 
on  the  amount  that  each  beneficiary  receives.  It  is  true  that  where 
the  inheritance  went  to  a  family  group  a  larger  exemption  could  be 
gained  by  dividing  the  estate  among  the  members  of  the  group;  but 
the  larger  the  group  the  greater  is  the  need  of  exemption. 

In  the  case  of  collateral  heirs  the  Washington  law  allows  no 
exemption.  To  this  there  can  be  little  objection.  Normally  col- 
lateral heirs  are  not  dependent  in  life  on  the  person  from  whom 
they  receive  a  bequest.  It  would,  perhaps,  be  well  if  it  were  possible 
to  make  provision  for  exceptional  cases.  Aside  from  this,  especially 
when  the  rate  of  taxation  is  low,  justice  does  not  seem  to  call  for 
any  exemption.  It  might,  however,  be  well  to  allow  one  low  enough 
to  cover  the  case  where  the  amounts  are  so  small  as  to  be  hardly  worth 
the  trouble  of  collecting. 

§5.  As  regards  rates,  the  Washington  tax,  at  the  time  it  was 
adopted,  was  one  of  the  best  in  the  country.  The  idea  of  inherit- 
ance taxation,  however,  has  since  then  received  considerable  devel- 
opment in  American  states,  and  there  are  now  some  improvements 
that  might  be  made. 

For  the  purpose  of  the  tax  the  recipients  of  inheritances  are  divid- 
ed into  three  classes.  The  first  is  that  of  direct  heirs  and  is  defined 
as  consisting  of  father,  mother,  husband,  wife,  lineal  descendant, 
adopted  child,  and  lineal  descendant  of  adopted  child.  Except  for 
parents  the  law  seems  to  make  no  provision  for  ascendants.  No  men- 
tion   is   made   of   grandparents    and   in    practice    they   are   treated   as 

'1  Tax  Commissioners  (1906),  Instructions  and  Opinions,  p.  228. 

"■'The  inheritance  tax,  while  not  a  debt  of  the  testator,  was  properly 
chargeable  to  the  beneficiaries."  In  re  Lotzgesell's  Estate,  62  Wash.  352  ff.; 
for  a  discussion  of  the  point  see  Seliffman,  "Essavs  in  Taxation"  (8th  edi- 
tion),  Ch.  V,  especiallly  p.   130. 


112 


THE  STATE  TAX  SYSTEM  OP  WASHINGTON 


collateral  heirs,  being  grouped  with  brothers  and  sisters.  Sons  and 
daughters  in  law  are  treated  as  strangers  to  the  blood.  The  second 
class  of  heirs  includes  collateral  relatives  to  and  including  the  third 
degree,  that  is,  as  far  as  uncle,  aunt,  nephew,  or  niece,  inclusive.® 
All  others  are  put  in  the  third  class. 

The  rates  imposed  can  best  be  shown  by  a  table: 


Exemption 

Amounts  above  exemption 

Heirs 

First 
$50,000 

Second 
$50,000 

Above 

first 
$100,000 

Father,   motiier,   husband,  wife,   lin- 
eal descendant,  adopted  child,  lin- 
eal  descent   of  adopted   child 

$10,000 

1% 

1% 

1% 

Collateral  relatives  as  far  as  uncle, 
aunt,   nephew,   niece,   inclusive.... 

0 

3% 

4.5% 

6% 

Other        collateral       relatives        and            f. 
strangers  to  the  blood 

6% 

9% 

12% 

It  will  be  noticed  that  for  direct  heirs  the  rate  is  progressive  only 
so  far  as  the  exemption  introduces  an  element  of  progression.  On 
all  amounts  in  excess  of  $10,000  the  rate  is  one  per  cent.  For  col- 
lateral heirs  of  the  first  class  the  rate  progresses  from  three  to  six 
per  cent,  and  for  all  others  from  six  to  twelve  per  cent. 

In  1907  there  was  inserted  in  the  law  a  provision  that  in  the 
case  of  non-resident  alien  collateral  heirs  the  rate  should  be  twenty- 
five  per  cent.  This  provision,  which  certainly  seems  unfair,  was  very 
soon  found  to  contravene  a  treaty  between  the  United  States  and 
the  United  Kingdom  of  Norway  and  Sweden.^".  As  this  treaty  was 
more  favorable  to  an  opposite  construction  than  were  the  treaties 
with    most    other    countries,    the    provision    was    repealed    in    1911.^^ 

§6.  The  inheritance  tax  could  be  made  to  yield  more  revenue 
if  the  rate  on  direct  heirs  were  made  progressive.  This  is  done  in 
a  number  of  foreign  countries,  including  England  and  France,  and, 
especially  in  recent  years,  in  a  number  of  the  American  states.  Since 
property  commonly  passes  chiefly  to  direct  heirs  the  rates  actually 
collected  are  usually  small.  It  is  true  that  the  immediate  family 
may  properly  be  regarded  as  having  some  claim  on  the  estate;  but  it 

•In    reckoning    consanguinity   Washington   follows    the    civil,    instead   of 
the    common,    law.      Remington    and    Ballinger's    Code,    Section    1347. 

"In  re  Peder  G.  Stlxrud's  Estate,  58  Wash.  339. 

"3   Tax   Commissioners    (1910),   p.    9;   Remington   and   Ballinger's   Code, 
Vol.  Ill,   Section   9183. 


THE    INHERITANCE    TAX  113 

must  be  remembered  that,  as  a  matter  of  necessity,  taxes  are  generally 
imposed  on  wealth  to  which  the  taxpayer  has  a  just  claim.  It  is  true 
that  the  death  of  a  member  of  a  family  is  likely  to  mean  financial 
loss  to  those  that  remain ;  but,  on  the  other  hand,  the  expenses  of 
the  family  are  likewise  commonly  reduced.  Where  the  income  of  the 
family  has  previously  consisted  chiefly  of  the  personal  earnings  of 
the  deceased  there  is  a  real  financial  loss.  If  there  were  no  exemp- 
tion the  tax  would  work  hardship  in  some  cases  and  would  be  unfair. 
Where,  however,  there  is.  a  reasonable  exemption  and  a  low  rate 
until  the  inheritance  has  reached  a  considerable  amount,  and  espe- 
cially where  the  surviving  husband  or  wife,  as  the  owner  of  one-half 
the  community  propertj',  pays  no  inheritance  tax  on  it,  there  seems 
to  be  no  reason  why  a  progressive  rate  may  not  be  imposed.  It  must 
be  remembered  that  where  the  inheritance  is  large  the  personal 
earnings  of  the  deceased  have  commonly  been  a  smaller  factor  in  the 
life  of  the   family  than  when  the  inheritance  is  small. 

The  determination  of  the  rates  to  be  imposed  must,  in  the  pres- 
ent state  of  our  knowledge  as  to  the  actual  effects  of  the  tax,  be  more 
or  less  arbitrary.  Probably  four  or  five  per  cent,  as  a  maximum, 
would  not  be  excessive,  but  it  should  be  applied  only  in  the  case 
of  a  very  considerable  inheritance.  The  model  inheritance  tax,  out- 
lined by  the  committee  of  the  International  Conference  on  State  and 
Local  Taxation,^-  provides  for  an  exemption  of  only  $2,500  in  the 
case  of  direct  heirs  and  a  tax  upon  them  increasing  from  one  to 
four  per  cent,  the  points  at  which  the  rates  increase  being  $25,000, 
$250,000,   and   $1,000,000. 

The  rates  imposed  on  collateral  heirs  are  less  open  to  adverse 
criticism.  The  maximum  rate  is  twelve  per  cent.  While  in  some 
states  and  in  some  foreign  countries  the  maximum  is  considerably 
higher,  it  may  be  doubted  whether,  under  existing  conditions,  it  should 
be  more  than  fifteen  per  cent.  This  is  the  maximum  imposed  by 
California  and  Wisconsin  and  it  is  that  recommended  by  the  com- 
mittee on  a  model  inheritance  tax  to  which  reference  has  already 
been  made.  The  rate  in  these  cases,  however,  increases  more  gradu- 
ally than  it  does  in  Washington,  and  in  the  two  states  mentioned  the 
maximum  is  applied  only  to  amounts  of  more  than  $500,000.  The 
committee  on  a  model  inheritance  tax  recommended  that  the  rate  of 
fifteen  per  cent  be  applied  only  to  amounts  in  excess  of  $1,000,000. 

'=4  National  Tax  Association  (1910),  p.  2S6. 


114  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

In  providing  for  two  classes  of  collateral  heirs  Washington  goes 
beyond  the  recommendation  of  the  committee  on  a  model  inheritance 
tax,  but  not  as  far  as  the  practice  of  a  number  of  the  other  states, 
including  Wisconsin  and  California.  In  the  opinion  of  the  author 
two  classes  are  desirable  and  sufficient;  and  the  Washington  tax 
could  hardly  be  improved  in  this  respect. 

We  have  seen  that  treating  the  exemption  of  $10,000  in  the  case 
of  direct  heirs  as  a  single  exemption  to  the  estate  is  wrong  in 
principle,  and  may  result  in  serious  hardship  in  practice.  Much 
the  same  might  be  said — and  more  strongly — of  making  the  rate, 
where  the  tax  is  progressive,  depend  not  on  the  size  of  the  partic- 
ular inheritance,  but  on  the  size  of  the  estate.  It  is  chiefly  be- 
cause ability  to  pay  increases  with  the  increasing  size  of  the  inher- 
itance that  a  progressive  rate  should  be  imposed.  The  ability  of  the 
recipient  is  dependent,  not  on  the  size  of  the  estate,  or  the  amounts 
passing  to  other  heirs,  but  on  the  amount  passing  to  him.  In  this 
matter  the  Washington  tax  is  capable  of  improvement. 

§7.  As  has  already  been  mentioned  the  State  Board  of  Tax 
Commissioners  is  charged  with  the  supervision  of  the  inheritance 
tax.  Executors,  administrators,  and  trustees  are  required  to  send  to 
the  Board,  on  demand,  certified  copies  of  any  parts  of  their  reports. 
The  Commissioners  have  authority  to  institute  court  proceedings  when- 
ever necessary  and  the  county  attorneys  are  required  to  render  as- 
sistance. The  Board  keeps  memoranda  of  such  proceedings  and  an 
itemized  account  of  all  taxes  collected,  charging  them  against  the 
State  Treasurer. 

When  any  petition  for  letters  of  administration  or  probate  of 
will  are  filed  the  petitioner  is  required  to  furnish  the  clerk  of  the 
court  with  a  statement  of  the  location,  nature,  and  probable  amount 
of  the  entire  estate,  a  list  of  heirs,  etc.,  with  the  relationship  of 
each  to  the  decedent,  and  an  estimate  of  the  amount  or  value  of  each 
share.  A  copy  of  this  list,  with  certain  other  information,  is  for- 
warded by  the  clerk  of  the  court  to  the  Tax  Commissioners. 

The  appraisers  of  an  estate  for  inheritance  tax  purposes  are 
appointed  by  the  court,  and  are  usually  the  same  as  those  appointed 
under  the  probate  law.  The  appraisers  give  notice  to  the  Commis- 
sioners of  the  time  and  place  of  making  the  appraisal.  The  latter, 
or  any  persons  interested,  may  file  exceptions,  which  shall  be  heard 
and  determined  by  the  court. 


THE    INHERITANCE    TAX  115 

In  order  to  ascertain  the  amount  of  the  estate  liable  to  the 
tax  certain  deductions  must  be  made.  These  are  debts  owing  at  the 
time  of  death,  including  state  and  local  taxes,  a  reasonable  sum  for 
funeral  expenses  and  court  costs,  and  the  statutory  fees  of  execu- 
tors, administrators,  and  trustees.  In  the  case  of  a  foreign  estate, 
liable  in  whole  or  in  part  to  the  tax,  similar  deductions  are  allowed 
upon  the  submission  of  proper  evidence. 

When  the  property  charged  with  the  inheritance  tax  is  of  such 
a  nature  or  so  disposed  that  the  liability  is  doubtful  the  Commis- 
sioners have  authority  to  compromise  with  the  beneficiaries  or  other 
representatives  of  the  estate.  To  be  valid,  however,  such  compro- 
mise must  be  approved  by  the  court  having  jurisdiction  of  the  case. 

The  inheritance  tax  is  ordinarily  collected  through  the  execu- 
tors, administrators,  or  trustees.  It  must  be  paid  within  fifteen 
months  from  the  date  of  death  unless  the  time  is  extended  by  the 
court.  In  the  case  of  real  estate,  failure  to  pay  the  tax  within  the 
time  allowed  may  result  in  a  court  order  directing  that  the  property, 
or  as  much  of  it  as  is  necessary,  be  sold  and  the  tax  paid.  As  we 
have  already  seen,  a  domestic  corporation  transferring  stock  at  the 
request  of  a  foreign  executor  renders  itself  liable  for  the  tax  and,  in 
like  manner,  anyone  holding  securities  or  other  property  of  a  non- 
resident delivering  such  property  to  a  non-resident  does  so  at  its  own 
risk.  Payment  of  the  tax  is  made  to  the  State  Treasurer,  who  issues 
a  receipt  in  duplicate,  one  copy  of  which  is  filed  with  the  Tax  Com- 
missioners. 

To  deal  with  the  numerous  cases  in  which  the  only  necessity 
for  probate  is  the  determination  of  the  liability  of  an  estate  to  the 
inheritance  tax  the  Commissioners  recommended  to  the  last  session 
of  the  Legislature  the  passage  of  a  law  providing  for  a  simple  and 
inexpensive  method  of  procedure. ^^  They  also  recommended  a  law 
for  the  appointment  of  public  administrators  to  deal  with  cases  where 
there  is  no  relative  residing  within  the  State  and  entitled  to  make 
application  for  letters  of  administration.^*  Neither  of  these  laws, 
however,  met  with  the  approval  of  the  Legislature. 

§8.  For  the  first  few  years  after  it  went  into  effect  the  yield  of 
the  inheritance  tax  was  small,  but  since  then  there  has  been  a  very 
great  increase.     For  the  four  years  ending  June   13,   1905,  the  total 

"5  Board  of  Tax  Commissioners   (1914),  p.  26. 
"Ibid.,  p.  24. 


116  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

receipts  were  only  $53,1 75. SS^"^.  P'or  the  biennium  ending  Sep- 
tember 30,  1914,  they  were  $291,888.65.  This  is  a  little  less  than 
for  the  preceding  biennium  when  they  were  a  little  more  than  $300,- 
000. 

The  great  increase  in  the  revenue  is  doubtless  to  be  accounted 
for  in  part  by  the  increased  number  and  value  of  estates  properly 
subject  to  the  tax;  but  such  an  explanation  would  seem  to  be  quite 
inadequate  for  an  increase  as  great  as  that  which  has  taken  place. 
It  appears  that  until  the  organization  of  the  State  Board  of  Tax 
Commissioners,  in  1905,  there  was  no  one  who  was  directly  respon- 
sible for  its  collection.^®  The  powers  of  the  Commissioners  were  in- 
creased in  1907,  and  they  then  began  an  examination  of  the  probate 
records  to  find  cases  in  which  the  tax  was  delinquent.  At  the  time 
of  their  report  in  1908,  though  the  investigation  was  not  quite  com- 
pleted, there  were  more  than  two  thousand  cases  still  unsettled,  in 
some  of  which  the  delay  was  due  to  legal  questions  which  had  not 
been  settled. 

There  is,  of  course,  still  some  evasion,  the  amount  of  which  it 
is  impossible  to  determine.  The  inheritance  tax  is  commonly  thought 
of  as  one  that  is  relatively  easy  to  enforce  and  while  this  is  doubt- 
less true  there  are  some  serious  difficulties.  When  property  passes 
through  the  probate  courts  it  can,  of  course,  be  found,  but,  as  in  the 
case  of  the  general  property  tax,  there  are  often  difficulties  of  val- 
uation. These  difficulties  are  usually  less  than  in  the  case  of  the 
general  property  tax,  for  it  is  practicable  to  examine  each  case  more 
thoroughly.  The  work  is  not  done  by  poorly  paid  deputies  who 
have  much  property  to  examine.  The  property  is  in  the  hands  of 
executors  or  administrators  who  ordinarily  have  much  less  interest 
in  keeping  down  the  valuation  than  has  the  owner  of  property  in 
dealing  with  the  assessor.  In  many  instances,  though  by  no  means 
in  all,  the  appraisal  is  made  for  purposes  of  distribution  as  well  as 
for  purposes  of  taxation.  The  whole  matter  is  under  the  eyes  of 
the  court,  and  there  are  often  beneficiaries  whose  interest  it  is  to 
see  that  the   estate   is  correctly  valued. 

Property  that  is  legally  subject  to  the  inheritance  tax  does 
not  necessarily  pass  through  the  courts.  It  is  here  that  ante-mor- 
tem gifts  are  important.  In  the  case  of  personal  property  there  need 
be  no  record  of  the  transfer,  and  the  State  is  largely  dependent  on 

'"Figures  used  in  this  connection  are  from  the  Biennial  Reports  of  the 
State  Board  of  Tax  Commissioners. 

'«2  Tax  Commissioners  (1908),  p.  28. 


THE    INHERITANCE    TAX  117 

the  willlingness  of  those  who  have  received  it  to  acknowledge  the 
obligation.  In  some  cases  large  estates  are  incorporated  and  the 
stock  is  transferred  under  circumstances  which  make  it  impossible  to 
prove  that  it  is  liable  to  the  tax. 

Of  course  it  is  possible  to  avoid  the  inheritance  tax,  as  it  is  to 
avoid  any  other,  by  establishing  a  residence  elsewhere  and  having 
no  property  invested  in  such  a  way  that  the  courts  of  the  State 
can  reach  it.  If  the  tax  were  very  heavy  it  is  probable  that  this 
would  be  done  in  some  cases,  especially  in  the  case  of  those  possessed 
of  very  large  fortunes.  Here,  as  in  so  many  other  cases  of  taxation, 
it  is  the  wealthy  who  are  best  able  to  escape.  It  is  very  doubtful, 
however,  whether  the  Washington  tax  is  sufficiently  severe  to  produce 
much  effect  of  this  sort. 

§9.  Unlike  the  general  property  tax  the  inheritance  tax  is 
thoroughly  sound  in  principle,  and  there  seems  no  reason  to  doubt 
that  it  can  be  so  administered  as  to  work  well  in  practice.  Like 
any  other  tax  it  has  its  limitations.  If  the  rate  rises  above  a  cer- 
tain point  evasions  will  increase;  and  it  is  not  impossible  that  wealthy 
citizens  will  leave  the  State.  If  these  difficulties  were  successfully 
met  a  very  high  rate  would  not  improbably  check  the  accumulation 
of  wealth;  and  it  must  be  remembered  that  economic  prosperity  is 
largely  dependent  on  capital.  Even  if  the  rate  be  not  too  high  grave 
injustices  are  possible.  Reference  has  already  been  made  to  the 
double  taxation  resulting  from  the  attempt  of  different  jurisdictions 
to  reach  the  same  property ;  to  the  treatment  of  exemptions  as  ap- 
plying to  the  estate  as  a  whole  and  not  to  the  different  shares ;  and, 
in  like  manner,  to  the  determination  of  the  rate  where  the  tax  is 
progressive,  by  the  amount  of  the  estate  instead  of  by  the  amount 
that  each  beneficiary  receives.  These  evils,  however,  are  not  inher- 
ent. They  could  be  eliminated  by  proper  legislation  and  a  good, 
effective  tax   remain. 


Chapter  IX. 

THE  REFORM  OF  THE  TAX  SYSTEM 

§1.  In  considering  possible  improvements  attention  will  here 
be  given  almost  exclusively  to  the  general  property  tax  and  to  some 
of  the  possible  substitutes  for  it.  Not  only  is  it  the  most  important 
element  in  the  present  system,  but  it  is  the  one  that  presents  the 
greatest  difficulties  to  reform.  Most  of  the  taxes  on  business  are 
merely  supplementary  to  it  or  are  largely  in  the  nature  of  fees.  The 
inheritance  tax  could  doubtless  be  improved  in  some  matters  of  de- 
tail, as  was  pointed  out  in  the  last  chapter;  but  the  fundamental 
principles  on  which  it  rests  are  sound. 

§2.  The  assessment  of  property  could  undoubtedly  be  made 
much  more  accurate  than  it  is.  As  has  already  been  pointed  ouf^ 
the  administrative  machinery  is  seriously  defective.  Difficult  and 
important  as  is  the  work  of  the  assessor  his  office  is  a  political  one, 
his  tenure  is  short,  and  his  remuneration  is  small.  Not  only  should 
all  these  conditions  be  changed  but  the  work  of  assessment  should  be 
organized  for  the  State  as  a  whole. 

Almost  any  tax  can  be  collected  if  the  rates  are  sufficiently  low 
and  the  conditions  are  otherwise  favorable.  In  those  Swiss  cantons 
in  which  it  is  most  successful  the  rate  on  personal  property  for  all 
purposes  varies  from  four  to  seven  mills  in  the  case  of  large  estates, 
with  still  lower  rates  for  the  smaller  ones.  In  those  cantons  in 
which  the  rate  rises  above  ten  or  twelve  mills  the  attempt  to  collect 
the  tax  is  a  failure.^ 

Even  in  some  of  our  American  states  a  considerable  amount  of 
revenue  is  secured  from  the  taxation  of  intangibles  at  a  very  low 
rate.  This  has  long  been  true  of  Pennsylvania.  In  Maryland  the 
rate  was  reduced  to  three  mills  for  local  purposes  in  1896.  Even 
with  the  state  tax  added  the  total  was  less  than  five  mills.  In  Balti- 
more, which  previously  had  a  rate  of  twenty  mills,  the  increase  in 
the  valuation  was  nearly  ten-fold  in  the  first  year.^  In  1911  Min- 
nesota had  a  somewhat  similar  experience,  the  rate  being  reduced 
from  an  average  of  more  than  twenty-eight  mills  to  three  mills.     In 

'pp.  41-2. 

'Bullock,  "The  General  Property  Tax  in  Switzerland,"  4  National  Tax 
Association,   pp.   55-84.      See  also   Seligman,    "The   Income  Tax,"   pp.    355-363. 

^Hollander,  "The  Taxation  of  Intangible  Wealth  in  Maryland,"  Quar- 
terly Journal  of  Economics,  Vol.  XXII    (February,   1908),   pp.   196-209. 

(118) 


THE  REFORM  OF  THE  TAX  SYSTEM  119 

this  case  the  change  in  the  rate  was  accompanied,  as  of  course  it 
should  be,  by  an  improvement  in  the  methods  of  assessment.*  There 
seems  no  sufficient  reason  to  believe,  however,  that  in  either  case  a 
really   satisfactory   assessment   is   made. 

Assuming,  however,  that  with  good  assessing  machinery  and  a 
very  low  rate  of  taxation  the  general  property  tax  could  be  effectively 
administered,  this  would  hardly  solve  the  problem.  The  state  and 
the  localities  need  considerably  more  revenue  than  could  be  raised 
by  the  general  property  tax  at  any  such  rates  as  those  that  have 
just  been  mentioned. 

§3.  Considering  the  numerous  efforts  that  have  been  made  at 
many  times  and  in  many  places  to  make  the  general  property  tax 
work  well  and  the  exceedingly  small  degree  of  success  that  has 
attended  such  efforts  there  is  at  least  ground  for  suspicion  that  the 
fault  does  not  lie  wholly  in  the  wickedness  of  the  property  holders, 
or  even  in  this  together  with  the  inadequacy  of  the  methods  of 
assessment.  At  the  Fourth  International  Conference  on  State  and 
Local  Taxation  a  committee  appointed  to  examine  into  the  causes  of 
failure  ended  its  report  with  the  following  words'': 

"We  conclude,  therefore,  that  the  failure  of  the  general  property 
tax  is  due  to  inherent  defects  in  the  theory; 

"That  even  measurably  fair  and  effective  administration  is  un- 
attainable ;  and  that  all  attempts  to  strengthen  such  administration 
serve  simply  to  accentuate  and  prolong  the  inequalities  and  unjust 
operation  of  the  system." 

There  is  little  reason  to  doubt  that  the  committee  was  right  in 
its  view  of  the  matter.  The  general  property  tax  is  fundamentally 
defective  in  theory.  Even  if  it  could  be  successfully  collected  it 
would  be  unjust.  Every  citizen  should  pay  taxes  according  to  his 
ability ;  but  property,  taken  alone,  is  not  a  satisfactory  criterion  of 
ability,  nor  do  all  kinds  of  property  represent  ability  in  the  same 
degree. 

It  should  be  sufficiently  obvious  that  personal  earnings  furnish 
ability  to  pay  taxes  just  as  truly  as  does  the  income  from  property. 
A  system  that  taxes  the  weak  who  are  dependent  on  a  small  amount 
of  property  and  exempts  the  strong  man  who  earns  a  large  income 
from  his  profession  but  promptly  spends  it  all  is  clearly  unjust.  It 
is  doubtless  true  that  the  income  from  property  is,  as  a  general 
proposition,   less    precarious   than   that    from   personal   earnings,    and 

•Armson,    "Two    Years'    Experience    in    Minnesota    with    the    Three    Mill 
Tax   on   Money    and    Credits,"    6    National    Tax    Association,    pp.    243-245. 
»4   National   Tax   Association,   p.    310. 


120  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

that  it  does  not  cease  with  the  death  of  its  owner.  It  may  also  be 
conceded  that  the  wealthy  man  who  could,  but  does  not,  take  an 
active  part  in  industry  has  more  ability  than  the  man  who,  by  hard 
work,  earns  an  equal  income.  Such  considerations  as  these  may 
justify  a  higher  rate  of  taxation  on  the  income  from  property  than  on 
that  from  personal  exertions;  but  they  assuredly  do  not  justify  the 
exemption  of  the  latter,  especially  when  the  needs  of  the  state  are 
so  great  as  to  make  necessary  a  very  high  rate  of  taxation  if  it  is 
confined  to  property. 

The  same  difficulty  is  brought  out  when  the  taxation  of  business 
property  is  considered.  Even  in  any  given  line  of  industry  profits 
are  not  dependent  on  the  amount  of  capital  alone,  but  on  the  ability 
with  which  it  is  used  and  on  special  considerations  of  the  sort  that 
are  commonly  spoken  of  as  good  and  bad  fortune. 

Some  forms  of  property  yield  no  income  at  all  except  that  of 
personal  enjoyment  to  the  owner.  Of  two  men  in  receipt  of  the 
same  income  one  may  spend  a  portion  of  his  for  durable  sources  of 
satisfaction,  the  other  for  those  that  are  transitory.  The  former 
may  possibly  get  more  real  enjoyment  out  of  life  than  the  latter, 
but  it  is  not  by  reason  of  benefits  conferred  by  the  state  nor  by 
reason  of  taxpaying  ability.  In  fact  he  may  have  less  ability.  The 
man  with  family  responsibilities  is.  more  likely  to  own  his  own  home, 
which  is  one  of  the  things  most  easily  taxed.  Even  if  it  be  true 
that  taxes  on  buildings  are  generally  shifted  such  a  man  ordinarily 
occupies  larger  premises  than  the  man  who  has  no  such  responsibili- 
ties. 

In  some  cases  the  general  property  tax  is  defective,  not  so  much 
by  reason  of  the  amount  of  taxes  as  by  the  circumstances  under 
which  they  are  collected.  In  the  case  of  forests,  for  example,  no  in- 
come may  be  received  for  a  long  period  of  time,  and  owing  to  the 
danger  of  fire  and  the  other  uncertainties  of  the  future  the  amount 
that  will  eventually  be  received  may  be  very  uncertain.  Yet  the 
forest  has  a  present  value,  dependent  on  its  anticipated  value,  dis- 
counted for  time  and  for  risk.  Probably  no  one  would  deny  that 
it  should  be  taxed,  and  taxed  at  a  fairly  high  rate,  but  there  is 
at  least  very  serious  question  whether  the  method  should  be  that  of 
the  general  property  tax. 

§4.  It  may  possibly  be  thought  that  the  inequalities  will  be 
smoothed  out  through  the  shifting  of  taxes.  To  some  extent  this  is 
indeed  the  case;  but  as  a  general  proposition  it  is  not  true.     Even 


THE   REFORM  OF  THE   TAX   SYSTEM  121 

when  shifting  takes  place  it  is  usually  very  difficult  to  follow;  and 
the  extent  to  which  the  injustices  are  removed  may  be  impossible 
to  ascertain. 

It  must  be  remembered  that,  as  a  rule,  shifting  takes  place  only 
when  demand  or  supply  is  affected.  A  tax  laid  on  one  particular 
line  of  business  or  one  particular  form  of  investment,  if  effectively 
administered,  will  generally  be  shifted  because,  other  things  being 
equal,  enterprise  and  capital  will  seek  those  lines  in  which  the  bur- 
dens are  least.  If  all  were  taxed  alike  the  taxes  would  be  shifted 
only  so  far  as  enterprise  was  discouraged  from  activity ;  and  the  ex- 
tent to  which  this  will  happen  is  almost  impossible  to  determine. 
When  the  tax  is  uncertain  in  its  operation  shifting  is  less  likely  to 
take  place.  One  of  the  chief  questions  in  that  case  is  whether  or 
not  the  particular  individual  will  happen  to  be  caught.  So  far  as  the 
fear,  of  the  typical  business  man,  influences  his  actions  it  may  have 
some  influence  on  the  incidence  of  taxation;  but  what  the  effect  will 
be  is  largely  an  unknown  quantity. 

Shifting  doubtless  tends,  to  some  extent,  to  smooth  out  the  in- 
equalities between  different  lines  of  business.  It  can  hardly  smooth 
out  the  inequalities  between  different  concerns.  There  is  no  assur- 
ance that  it  results  in  anything  like  the  adequate  taxation  of  those 
whose  ability  is  derived  from  other  sources  than  the  ownership  of 
property.  Even  if  successfully  administered  a  property  tax  is  almost 
necessarily  unequal  in  its  operation. 

Even  if  the  burden  were  fairly  distributed  a  serious  evil  would 
remain.  A  tax  is  direct,  in  the  economic  sense,  only  so  far  as  it  is 
not  shifted.  When  the  tax  is  indirect  neither  those  who  pay  it  in 
the  first  instance  nor  those  who  pay  it  in  the  last  are  likely  to  give 
to  efficiency  and  economy  in  public  expenditure  the  attention  that  a 
proper  regard  for  their  own  interest  would  demand.  The  former 
see  that  the  tax  does  not  come  out  of  their  pockets.  The  latter  do 
not  realize  the  nature  of  the  burden. 

§5.  Great  as  are  the  evils  of  the  general  property  tax,  Wash- 
ington, like  many  of  the  other  states,  is  firmly  bound  to  it  by  its 
constitution.  As  we  have  already  seen,  the  provisions  in  regard 
to  exemptions  are  narrow  and  are  strictly  construed.  The  decision 
that  virtually  permits  the  exemption  of  intangibles  may  probably  be 
regarded  as  an  exception.  Here  the  Court  seems  to  have  made  use 
of  the  light  of  reason,  in  one  of  the  best  senses  of  that  misunder- 
stood  term ;   but   neither  the  light  of   reason   nor  anything  else   that 


122  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

is  legitimate,  save  only  a  constitutional  amendment,  will,  so  far  as 
can  now  be  seen,  permit  the  adoption  of  anything  like  a  satis- 
factory system  of  taxation. 

Since  it  was  organized  the  State  Board  of  Tax  Commissioners 
has  never  failed  to  recommend  to  the  Legislature  the  submission  of 
a  constitutional  amendment.  In  1907  the  recommendation  was  ac- 
cepted, but  the  proposed  amendment  was  defeated  at  the  polls,  partly 
at  least,  because  it  was  not  understood.  The  amendment  recommend- 
ed at  the  last  session  was  allowed  to  die  in  committee. 

All  of  the  amendments  proposed  by  the  Commissioners  would 
have  given  the  Legislature,  or  since  the  use  of  the  initiative  and  ref- 
erendum became  constitutional,  the  people  acting  directly,  a  fairly 
free  hand.  An  essential  feature  of  each  of  them  was  that  which 
would  permit  the  classification  of  property  for  the  purpose  of  tax- 
ation. To  some  it  will  seem  that  any  of  them  would  give  too  much 
freedom;  to  others  that  they  are  all  unduly  restrictive.  Which 
view  will  be  taken  will  depend  very  largely  on  the  attitude  of  its 
proponent  towards  constitutional  government. 

It  may  be  admitted  that  under  any  of  these  proposed  amend- 
ments various  injustices  would  be  possible.  Under  the  existing  con- 
stitution injustices  are  actual,  and  no  modification  of  the  general 
property  tax  that  would  remove  them  can  be  made.  One  need  not 
be  an  enthusiastic  believer  in  democracy  to  hold  that  it  is  highly 
improbable  that  evils  worse  than  those  that  now  exist  would  arise. 
It  is  true  that  various  plans,  the  adoption  of  which  would  almost 
certainly  prove  unfortunate,  to  use  a  very  mild  term,  are  from  time 
to  time  suggested  and  obtain  a  considerable  following.  To  a  very 
large  extent  they  simply  represent  the  reaction  against  the  iniquities 
of  the  present  system.  Injustice  is  an  excellent  fertilizer  for  crude, 
incomplete,  and  exceedingly  radical  theories ;  and  many  of  these 
movements  would  be  weakened,  if  not  killed,  by  the  adoption  of  a 
more  just  system.  If  the  general  property  tax  is  to  be  continued 
there  is  at  least  the  danger  that  some  of  these  movements  will  in- 
crease in  strength;  and  it  is  not  beyond  the  bounds  of  possibility 
that  we  shall  be  forced  to  put  them  to  the  test  of  experience,  how- 
ever costly  that  experience  may  prove  to  be. 

If  it  were  possible  to  provide  constitutional  restraints  that  would 
at  once  prevent  injustice  and  allow  the  freedom  that  is  necessary 
for  the   adoption   of   a   satisfactory   system   it   would,   in  the  opinion 


THE  REFORM  OF  THE  TAX  SYSTEM  123 

of  the  author,  be  desirable  to  do  so.  It  seems  fairly  clear,  however, 
that  this  is  impossible.  Even  if  it  were  proper  to  insert  bodily 
in  the  constitution  all  the  features  that  a  good  system  under  the 
present  circumstances  should  have,  the  necessary  flexibility  would  be 
lacking.  We  have  at  present  cast  iron  provisions  which  were  doubt- 
less meant  to  secure  real  equality,  but  in  this  they  have  been  an 
egregious  failure.  Sooner  or  later  a  change  will  come.  To  maintain 
a  dam  of  constitutional  restraints,  such  as  we  now  have,  is  to  take 
the  grave  risk  that  the  demand  for  reform  will  eventually,  like  a 
disastrous    flood,    sweep    all    before    it. 

§6.  No  attempt  will  here  be  made  to  set  forth  a  satisfactory 
system  of  taxation.  He  would  be  rash  who  undertook  such  a  task 
single-handed.  The  matter  should  be  examined  from  several  points 
of  view,  and  a  number  of  considerations  other  than  those  with  which 
the  economist  is  primarily  concerned  should  be  taken  into  account. 
Probably  complete  reform  must  come  slowly ;  but  after  the  first  big 
step — the  amendment  of  the  constitution — great  improvement  is 
possible. 

One  of  the  plans  most  widely  favored  in  other  parts  of  the 
country  is  the  classification  of  property  for  the  purpose  of  taxation. 
The  number  of  classes  need  not  be  large,  especially  if  entirely  dif- 
ferent methods  are  adopted  in  certain  cases  in  which  property  is  a 
particularly  unsatisfactory  basis  for  taxation.  Many  of  those  who 
advocate  this  system  would  have  only  three  classes:  real  estate,  tan- 
gible personalty,  and  intangibles.  Probably,  liowever,  a  somewhat 
more  elaborate  classification  would  prove  desirable. 

The  most  satisfactory  part  of  the  general  property  tax  is  that 
which  has  to  do  with  ordinary  urban  and  rural  real  estate;  and  this 
part  might  be  left  substantially  untouched  except  for  improvements 
in  the  method  of  assessment.  Property  of  this  sort  now  yields  about 
eighty-five  per  cent  of  the  revenue  secured  under  the  general  prop- 
erty tax.  Logically,  it  would  seem  that  a  distinction  should  be  made 
between  land  and  buildings.  Land  is  generally  admitted  to  be  a  par- 
ticularly good  subject  for  taxation.  There  is  a  more  direct  rela- 
tion between  public  expenditures  and  the  benefit  received  by  the 
owner  than  is  the  case  with  almost  any  other  form  of  property ;  and 
these  benefits,  as  a  general  proposition,  are  of  a  sort  that  increases 
taxpaying  ability.  Moreover,  even  when  the  present  owners  have 
paid  full  value,  the  anticipated  rate  of  taxation  has  been  in  a  large 
measure    capitalized    and    allowed    for    in   the    price   that   they    paid. 


124  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

To  reduce  the  rate  of  taxation  would  practically  amount  to  a  gift 
to  the  present  owners. 

Yet  even  as  regards  land  some  distinctions  should  perhaps  be 
made.  Very  probably  forest  lands  should  be  put  in  a  class  by 
themselves.  This  does  not  necessarily  mean  that  they  should  be 
taxed  at  a  lower  rate,  but  that  they  should  be  taxed  by  different 
methods.  One  very  important  suggestion  that  has  been  made  is 
that  an  annual  tax  should  be  imposed  on  the  land  and  a  tax  on  the 
timber  when  cut,  the  latter  being  sufficiently  high  to  make  up  for  the 
period  of  exemption. "^  Such  an  arrangement  as  this  should  be  made 
only  with  adequate  safeguards  and  limitations.  In  particular  some 
provision  would  have  to  be  made  to  protect  the  various  taxing  dis- 
tricts, and  perhaps  the  state  itself,  from  irregularity  in  income. 
Strictly  this  plan  need  not  provide  for  a  separate  classification  of 
forest  land,  but  the  timber  would  have  to  be  separately  classified 
whether  regarded  as  real  or  as  personal  property. 

Mineral  land  might  be  put  in  a  separate  class.  Like  forest 
land  there  are  special  difficulties  in  the  way  of  applying  the  general 
property  tax  to  it.  Possibly  it  would  be  practicable  to  distinguish 
between  a  mine  as  a  piece  of  real  estate,  and  a  mine  as  a  produc- 
tive property,  the  former  being  treated  in  the  same  way  as  other 
lands. 

It  cannot  be  denied  that  there  is  an  economic  difference  between 
land  and  those  forms  of  wealth  that  are  made  by  man,  and  that 
improvements  are  in  the  latter  class.  While,  as  a  general  proposition, 
capital  should  be  taxed  at  a  lower  rate  than  land,  it  does  not  follow 
that  this  should  be  done  in  all  cases,  especially  when  there  are  se- 
rious practical  difficulties  to  be  taken  into  account.  Such  im- 
provements as  grading,  when  once  made,  become  indistinguishable 
from  the  land  itself;  and  even  from  the  point  of  view  of  economics 
must  often  be  regarded  as  land  for  many  purposes.  It  appears  that 
in  Vancouver,  B.  C,  which  is  supposed  to  use  the  "single  tax"  for 
municipal  purposes,  improvements  of  this  sort  are  so  treated  soon 
after  they  are  made.^  Structures  can,  of  course,  be  dealt  with  sep- 
arately, and  there  is  much  to  be  said  in  favor  of  a  lower  rate  of 
taxation   than   is   applied   in   the   case   of   land.      Certainly,   however, 

'See  Miller,  "Forest  Taxation  in  Washington,"  with  the  discussion 
following,  in  Taxation  in  Washington,  pp.  45-68;  Fairchild,  "Suggestions 
for  a  Practical  Plan  of  Forest  Taxation,"  6  National  Tax  Association,  pp. 
371-401;  "Report  of  the  Committee  on  Forest  Taxation,"  7  National  Tax 
Association,   pp.    413-422. 

'C.  J.  Bullock,  "The  Single  Tax  in  Vancouver,"  New  York  Evening 
Post,    June    27,    1914. 


THE  REFORM  OF  THE  TAX   SYSTEM  125 

they  represent  taxpaying  ability,  and  there  is  no  sulhcient  reason  wliy 
they  should  be  exempt  unless  this  ability  is  reached  in  some  other 
way.  Indeed,  there  is  some  reason,  from  the  theoretical  point  of 
view,  for  their  taxation  even  when  most  forms  of  personalty  are 
exempt,  and  it  would  seem  that  a  higher  rate  on  them  would  not 
be  without  some  justification. 

If  the  matter  is  to  be  considered  from  a  practical,  rather  than 
from  an  ideal,  standpoint  it  should  be  recognized  that  the  tax  on 
real  estate,  including  structures,  is  one  of  the  most  effective  parts 
of  the  general  property  tax.  Any  great  reduction  in  the  tax  on 
buildings  would  necessitate  radical  changes  elsewhere.  Granting 
that  there  are  evils  in  treating  them  in  the  same  way  as  land,  these 
are  probably  less  serious  than  is  the  case  with  most  other  forms  of 
capital.  If  a  classified  property  tax  is  adopted  it  will  be  well  to 
begin  with  a  fairly  simple  classification.  If  this  is  done  land  and 
improvements  may,  at  least  for  a  time,  be  left  in  the  same  class. 

§7.  In  regard  to  personalty  the  situation  is  different.  It  is 
here  that  the  general  property  tax  presents  the  greatest  practical 
difficulties  and  the  greatest  theoretical  defects.  It  is  by  no  means 
certain  that  a  considerable  reduction  in  the  rate  of  taxation  would 
result  in  a  serious  loss  of  revenue.  The  fact  that  personalty  repre- 
sents only  about  fifteen  per  cent  of  the  total  valuation  would  alone 
justify  the  view  that  it  would  not.  Moreover,  the  same  fact  at  least 
suggests  that  the  present  rates  on  personalty  are  higher  than  the 
traffic  will  bear.  It  is  not  improbable  that  a  material  reduction 
in  rates,  accompanied  by  improved  methods  of  assessment,  would  re- 
sult in  an  actual  increase  in  revenue. 

Even  if  intangibles  continue  to  be  regarded  as  not  property  for 
the  purpose  of  taxation,  personalty  should  be  divided  into  at  least 
two  classes:  productive  and  unproductive  property.  Of  the  former 
almost  any  kind  of  business  property  is  typical ;  of  the  latter,  house- 
hold goods.  Productive  property  yields  an  income  that  furnishes  tax- 
paying  ability,  though  the  special  considerations  that  apply  to  land 
do  not  apply  to  it.  For  these  reasons  it  should  be  taxed,  but  taxed 
at  a  lower  rate  than  the  land. 

A  few  forms  of  productive  property  should  probably  be  given 
special  treatment,  if  only  because  of  the  difficulties  of  assessment. 
Public  service  corporations,  for  example,  might  be  taken  from  under 
the  property  tax  altogether.  Some  of  the  representatives  of  these 
corporations    are   emphatic    in   asserting   their    preference    for    a    tax 


126  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

on  gross  earnings.  Commonly  they  have  in  mind  such  a  tax  imposed 
at  a  flat  rate.  This,  however,  would  hardly  be  satisfactory.  The  rate 
should  be  adjusted,  in  some  way,  to  the  rate  on  property,  and  should 
vary  with  it. 

Unproductive  property  is  much  less  reliable  as  an  indica- 
tion of  tqxpaying  ability  than  is  productive  property.  The 
amount  held  is  at  least  partly  dependent  on  the  individual's 
tastes  and  necessities.  One  man  may  spend  much  on  travel,  thea- 
tres, etc.  Another  may  collect  books  and  pictures.  Doubtless  the 
man  who  can  afford  to  have  a  considerable  amount  of  personal  be- 
longings is  better  able  to  pay  than  the  one  who  cannot,  but  of  two 
men  of  equal  ability  one  may  have  a  far  greater  amount  of  durable 
property  than  the  other.  Upon  the  whole  it  would  seem  that  the  tax 
should  be  less  than  in  the  case  of  productive  property. 

§8.  In  most  of  the  states  in  which  classification  is  desired  it 
is  largely  in  order  that  the  intangibles  may  be  separately  treated, 
for  it  is  here  that  the  general  property  tax  reaches  the  height  of 
absurdity,  both  in  theory  and  in  practice.  In  Washington  complete 
exemption  has  happily  been  preferred.  If,  however,  it  were  possible 
to  tax  them  at  a  low  rate,  the  proposal  to  do  so  would  undoubtedly 
be  made.  In  regard  to  the  merits  of  such  a  proposal  there  is  some- 
thing to  be  said  on  both  sides. 

The  great  underlying  fact  is  that,  with  some  exceptions  that 
are  of  relatively  little  importance  in  this  connection,  credits  are 
simply  the  right  to  receive  tangible  property  that,  presumably,  is 
already  subject  to  taxation.  On  this  point  the  argument  of  our 
Supreme  Court  is  thoroughly  sound.  If  A  mortgages  land  to  B  for 
$10,000  there  is  no  increase  of  $10,000  in  the  wealth  of  the  parties. 
Perhaps  B  rather  than  A  should  pay  the  tax  on  this  amount,  but  to 
collect  it  from  him  does  not  necessarily  mean  that  he  is  really  the 
one  who  pays  it.  If  C  and  D,  previously  transacting  business  as  a 
partnership,  incorporate  and  issue  capital  stock  to  the  value  of  the 
tangible  property,  neither  wealth  nor  taxable  ability  has  been  dou- 
bled. To  tax  both  is  to  tax  the  stockholders  twice;  once  collectively 
and  once  individually.  Both  taxes  come  out  of  the  same  earnings. 
This  is  commonly  recognized  where  both  forms  of  property  are  in  the 
same  state.  The  fact,  however,  that  two  states  are  involved  does 
not  remove  the  injustice;  nor  can  a  state  that  adopts  a  practice 
which,  if  followed  by  all,  would  inevitably  result  in  injustice,  claim 
that  it  is  guiltless  of  the  wrong. 


THE   REFORM  OF  THE   TAX   SYSTEM  127 

Granting  that  the  taxation  of  tangible  and  intangible  property 
is  double  taxation,  the  argument  for  a  moderate  rate  on  the  latter  is 
not  fully  answered.  It  is  quite  possible  that  securities,  taking  into 
account  the  tangible  property  they  represent,  show  a  somewhat 
higher  degree  of  taxpaying  ability  than  does  the  direct  ownership  of 
tangible  property,  though  clearly  not  as  high  a  degree  as  would  be 
necessary  to  justify  taxation  of  both  at  the  same  rate. 

It  must  also  be  conceded  that  equality,  important  as  it  is,  is 
not  the  sole  consideration.  The  fact  that  the  tax  on  the  property 
of  the  corporation  is  virtually  only  an  indirect  tax  on  the  security 
holder  is  in  some  cases  an  evil,  though  in  others  the  security  holders 
probably  realize  well  enough  that  the  tax  falls  on  them.  Moreover 
it  must  be  recognized  that  the  community  in  which  the  security  hold- 
er resides  has  some  claim  to  taxes  from  him.  In  the  absence  of 
an  agreement  between  taxing  jurisdictions,  which  it  may  be  impos- 
sible to  secure,  a  certain  amount  of  injustice  is  inevitable,  whether 
intangibles  be  taxed  or  not.  Looked  at  from  this  point  of  view  a 
moderate  rate  is  a  compromise  in  an  evil  situation  over  which  the 
state  has  nothing  like  adequate  control. 

There  is  no  doubt  that,  with  proper  methods  of  administration, 
a  large  revenue  can  be  secured  from  a  low  rate  on  intangibles.  A 
few  instances  have  already  been  cited.  Experience  in  the  East  seems 
to  show  that  the  rate  which  can  be  successfully  imposed  does  not  ex- 
ceed three  or  four  mills.  Notwithstanding  the  fact  that  interest  rates 
are,  at  present,  somewhat  higher  in  the  West  than  they  are  in  the 
East  five  mills  would  undoubtedly  put  a  heavy  strain  on  the  taxing 
machinery.  Five  mills  may  seem  very  small  in  comparison  with  the 
rates  to  which  we  are  accustomed,  but  it  must  be  remembered  that 
this  is  really  in  addition  to  other  taxes.  Moreover,  while  some  rea- 
sons have  been  advanced  for  the  taxation  of  intangibles  it  should  be 
recognized  that  they  are  not  conclusive.  There  is  much  to  be  said 
in  favor  of  continuing  the  exemption.  If  any  tax  is  imposed  it  should 
probably  not  exceed  three  mills. 

In  considering  the  moderate  taxation  of  intangibles  a  flat  rate 
is  commonly  suggested.  While  it  is  generally  desirable  that  the 
rate  should  fluctuate  with  public  expenditures,  a  flat  rate  is  less  ob- 
jectionable in  this  case  than  in  most  others,  although  it  ignores,  of 
course,  the  diflfcrences  between  different  kinds  of  securities.  Taxes 
on  tangible  property  would  still  fluctuate,  and  these  have  their  ef- 
fect on  the  holders  of  intangibles.     Moreover,  the  administrative  ad- 


128  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

vantages  of  a  flat  rate  are  probably  greater  in  this  case  than  in  most 
others. 

§9.  The  classified  property  tax  has  been  discussed  at  some 
length,  largely  because  of  the  very  conspicuous  part  it  would  be  sure 
to  play,  were  the  constitution  amended,  among  the  various  proposals 
for  reform.  Our  discussion  should  make  two  things  clear:  first,  that 
the  classified  property  tax  would  be  a  vast  improvement  over  the 
present  system ;  and  second,  that  it  would  not  be  entirely  satisfactory. 

Classification  of  the  sort  here  suggested  is  not  arbitrary.  It  is 
based  on  economic  distinctions  between  different  kinds  of  property. 
To  ignore  them,  as  is  done  under  the  general  property  tax,  is,  to 
say  the  least,  highly  unscientific;  and  it  is  not  at  all  surprising  that 
as  regards  many  kinds  of  property  the  present  system  works  badly. 
Even  under  a  classified  property  tax  an  improvement  in  the  admin- 
istrative machinery  would  be  of  vital  importance ;  but  it  is  doubtful 
whether  any  machinery  could  be  devised  under  which  the  general 
property  tax  could  be  effectively  administered.  In  view  of  the  in- 
justices that  would  result  this  is,  perhaps,  not  wholly  a  matter  for 
regret. 

While  the  classified  property  tax,  properly  planned  and  admin- 
istered, would  do  away  with  many  of  the  worst  evils  of  the  present 
system  some  of  them  would  remain.  By  classification  allowance 
can  be  made  for  the  very  important  difference  between  different  kinds 
of  property' ;  but  it  is  still  a  property  tax.  Property  is  but  one  test 
of  ability.  It  may  legitimately  be  used  in  conjunction  with  other 
tests ;  but  used  alone  it  fails  to  make  allowance  for  the  differences 
in  the  circumstances  of  individuals,  except  so  far  as  this  can  be 
done  through  exemptions ;  and  there  are  some  important  forms  of 
ability  which  it  reaches  only  indirectly  and  to  a  very  uncertain  ex- 
tent, if  at  all. 

As  a  method  of  reform  the  classified  property  tax  has  one  great 
advantage  over  many  others.  It  would  be  a  big  step  forward ;  and 
the  best  progress  is  not  ordinarily  made  by  leaps  and  bounds.  The 
change,  though  important,  would  not  be  violent  in  character ;  and 
there  would  not  be  serious  difficulties  of  readjustment.  It  M'ould 
require  the  adoption  of  no  entirely  new  or  unfamiliar  methods.  From 
the  ground  thus  gained  further  steps  could  be  taken.  The  method  is 
that  of  evolution. 

§10.  While  there  are  a  number  of  possible  substitutes  for 
the  personal  property  tax  but  one  will  here  be  considered.     This  is 


THE  REFORM  OF  THE  TAX  SYSTEM  129 

the  income  tax.  From  some  points  of  view  it  would  be  vastly  su- 
perior to  the  classified  property  tax.  Our  brief  experience  with 
the  federal  income  tax,  however,  may  appear  to  many  to  furnish  a 
strong  ground  for  objection.  In  particular,  great  evils  have  arisen 
in  connection  with  the  principal  of  stoppage  at  the  source ;  and  there 
are  a  number  of  serious  complexities,*  The  former  can  probably 
be  removed  only  by  an  amendment  of  the  law,  and  the  same  is  true 
of  a  few  of  the  latter.  Some  of  the  complexities,  however,  will  be 
less  troublesome  after  we  become  more  familiar  with  the  law.  Many 
of  these  difficulties  seem  to  have  been  avoided  in  Wisconsin,  which 
is  the  leading  state  in  regard  to  income  taxation. ''  The  Wisconsin 
law  is  really  supplementary  to  that  on  real  and  tangible  personal 
property,  provisions  being  made  to  avoid  double  taxation.  It  would 
seem,  however,  that  it  would  be  possible  to  expand  the  scope  of  the 
income  tax,  diminishing  that  of  the  property  tax  till  only  the  desir- 
able features  of  the  latter  remain. 

From  the  fact  that  we  have  a  federal  income  tax  both  advan- 
tages and  disadvantages  in  the  use  of  a  similar  tax  for  state  purposes 
would  arise.  Among  the  former  are  the  possibilities  in  the  way  of 
efficiency  in  assessment  and  of  convenience  to  the  taxpayer.  Probably 
the  most  important  objection  is  the  high  rate  that  might  be  necessary 
if  both  the  National  Government  and  the  State  make  use  of  the  same 
tax.  Even  now  the  combined  rate  of  the  federal  and  Wisconsin  in- 
come taxes,  both  of  which  are  progressive,  is  very  high  in  the  case 
of  large  incomes,  approaching  thirteen  per  cent  as  a  limit.  The 
Wisconsin  income  tax,  however,  does  not  fall  on  the  entire  income. 

Upon  the  whole  the  introduction  of  an  income  tax  as  a  partial 
substitute  for  the  general  property  tax  would  probably  be  the  best 
possible  method  of  reform.  The  tax  on  real  estate,  or  at  least  on 
land,  should  of  course  be  continued,  and  there  are,  perhaps,  some 
forms  of  personal  property  that  should  still  be  subject  to  taxation. 
Double  taxation  resulting  from  the  fact  that  both  taxes  arc  used  is 
easily  avoided.  In  Wisconsin  the  taxpayer  is  allowed  to  deduct  his 
personal  property  tax  from  his  income  tax.  Though  not  sat- 
isfactory as  a  single  tax,  there  is  much  to  be  said  in  favor  of  mak- 
ing   the    income    tax    tlic    central    feature    of    the    tax    system.       It 

"See  articles  by  C.  J.  Bullock.  F.  L.  Speer,  and  A.  C.  Reardick,  8  Na- 
tional Tax  As.sociation.  pp.  264-314,  and  the  discussion  followinpr:  also 
articles  by  M.  L.  SchilT  and  R.  G.  Blakey,  Annals  of  tlie  American  Acad- 
emy of  Political  and  Social  Science,  Vol.  LVIII   (March.   1915),  pp.   15-43. 

»See  articles  by  K.  K.  Kennan  and  T.  E.  Lyons,  Annals  of  the  Amer- 
ican  Academy,   loc.   cit.,   pp.    65-S6. 


130  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

reaches  forms  of  taxpaying  ability  that  hardly  any  other  tax  can 
reach  and  in  regard  to  which  the  property  tax  is  a  very  bad  failure. 
Like  the  classified  property  tax,  its  adoption  would  not  make  neces- 
sary violent  readjustments,  and  would  open  the  way  for  the  develop- 
ment of  a  satisfactory  system. 

§11.  A  possible  reform  of  a  somewhat  different  sort  that  is 
sometimes  proposed  is  the  adoption  of  "local  option"  or  home  rule  in 
taxation. 

It  is,  perhaps,  not  generally  realized  that  a  limited  measure  of 
home  rule  exists  today.  In  particular,  the  cities  have  a  large  de- 
gree of  freedom  in  their  use  of  business  licenses.  So  far  as  the  law 
is  concerned  it  would  probably  be  possible  for  a  city,  even  now,  to 
largely  abandon  the  general  property  tax  for  municipal  purposes. 
This,  however,  is  not  what  is  commonly  meant  when  home  rule  is 
mentioned.  Under  complete  home  rule  the  localities  would  have  the 
power  to  devise  their  own  systems  of  taxation.  Commonly  its  advo- 
cates have  the  general  property  tax  particularly  in  mind.  They  would 
permit  the  localities  to  classify  property,  to  fix  the  rates,  and,  above 
all,  to  grant  exemptions.  The  movement  for  home  rule  in  taxation  is 
in  part  a  protest  against  the  iniquities  of  the  general  property  tax, 
in  part  a  phase  of  the  movement  for  the  adoption  of  some  particular 
reform,  and  in  part  a  phase  of  the  movement  for  home  rule  as  a 
general  political  principle. 

Regarding  taxation  as  a  means  of  securing  revenue,  the  chief 
object  with  which  we  are  here  concerned  is  the  discovery  and  ap- 
plication of  a  rule  for  measuring  the  taxpaying  ability  of  individ- 
uals. If  the  methods  of  taxation  are  to  rest  on  scientific  principles 
it  would  seem  that  the  state  is  in  a  much  better  position  than  the 
localities,  especially  the  smaller  ones,  to  handle  the  matter  efficiently. 
Indeed,  to  leave  it  to  the  localities  would  involve  a  most  unnecessary 
amount  of  duplication  of  work.  It  may  be  admitted  that  conditions 
differ  in  different  places,  and  it  is  possible  that  what  is  best  for  one 
is  not  best  for  another;  but  it  may  be  doubted  that  conditions  are  in 
fact  different  in  such  a  way  or  to  such  a  degree  as  to  make  this  an 
important  consideration.  The  suggestions  that  we  have  considered 
in  regard  to  the  form  of  taxation  would  seem  to  be  of  fairly  general 
application. 

A  consideration  which  appeals  very  forcibly  to  the  author  is  the 
fact  that  the  interests  involved  are  not  so  distinctively  local  as  to 
make  the  methods  of  taxation  anything  like  a  matter  of  indifference 


THE  REFORM  OF  THE  TAX  SYSTEM  131 

to  other  parts  of  the  state  than  those  directly  concerned.  It  is  not 
merely  that  each  locality  is  interested  in  the  welfare  of  the  state  as 
a  whole.  On  the  contrary,  it  is  only  too  often  willing  to  gain  at 
the  expense  of  others ;  and  herein  lies  a  part  of  the  difficulty.  Under 
home  rule  one  locality  might,  by  its  competition,  virtually  compel 
others  to  adopt  methods  of  taxation  similar  to  its  own.  To  some  this 
seems  to  be  a  positive  advantage.  Natural  selection,  they  believe, 
will  compel  the  adoption  of  the  best  system.  This  is  a  very  short 
sighted  view. 

It  is  not  the  chance  to  pay  taxes  that  attracts  men  and  business 
to  a  place,  but  the  chance  to  avoid  payment.  Under  a  system  of  home 
rule  the  temptation  to  make  concessions,  if  not  to  individuals  at  least 
to  classes,  would  be  very  hard  to  resist.  To  take  but  one  example: 
it  is  by  no  means  improbable  that  one  of  our  cities,  in  its  desire  to 
secure  manufactures,  would  offer  low  rates  of  taxation  or  complete 
exemption.  This  would,  perhaps,  have  a  beneficial  effect  on  that  city, 
so  long  as  the  others  did  not  follow  its  example.  Competition,  when 
it  works  smoothly,  is  beneficial — to  those  who  deal  with  the  com- 
petitors, not  necessarily  to  the  competitors  themselves.  When  compe- 
tion  works  ill  it  is  likely  to  benefit  a  few  at  the  expense  of  the  rest. 

A  little  consideration  of  the  economic  character  of  this  competition 
will  throw  some  light  on  its  probable  effects.  Taxes  are  justified 
by  the  expenses  necessary  for  the  conferring  of  common  benefits.  It 
is  not  possible  to  make  particular  payments  conform  to  particular 
benefits  nor  to  the  cost  thereof.  The  coming  of  a  given  industrial 
establishment  doubtless  increases  the  cost  of  government,  but  this  cost 
cannot  be  estimated,  and  its  coming  brings  benefits  as  well  as  costs. 
This  establishment  may  have  a  very  high  taxpaying  ability,  but  even 
from  a  fiscal  point  of  view — and  it  is  very  hard  for  a  community  in 
such  a  matter  to  confine  itself  to  the  fiscal  point  of  view — it  may  be 
better  to  charge  it  a  low  rate  than  to  let  it  go  elsewhere.  Even  under 
the  existing  conditions  there  is  a  strong  temptation  for  localities  to 
bid  for  the  presence  of  objects  that  can  be  taxed  by  giving  them  a 
low  valuation. 

In  this  respect  taxes  somewhat  resemble  railroad  rates,  but  the 
analogy  is  not  perfect  and  care  must  be  taken  not  to  push  it  too  far. 
Where  unrestrained  competition  exists  railroads  will  often  carry  traffic 
at  any  rate  that  will  cover  the  actual  cost  of  handling  and  contribute 
even  a  trifle  to  the  general  expenses,  though  it  might  fairly  be  called 
upon  to  pay  a  large  share  of  them.     It  is  precisely  this  principle  that 


132  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

has  led  the  railroads  to  make  gross  discriminations  between  places  and 
even  between  persons,  allowing  large  rebates  to  powerful  shippers. 

While  there  is  some  doubt  as  to  how  far  competition  between 
different  branches  of  the  government  is  beneficial,  conspicuous  illus- 
trations of  the  reverse  effect  are  not  lacking.  The  intolerable  evils 
of  commercial  competition  between  the  states  were  among  the  chief 
causes  of  the  adoption  of  the  National  Constitution,  which,  among 
other  provisions  relating  to  commerce,  forbids  the  imposition  by  the 
states  of  customs  duties.  It  was  by  reason  of  states'  rights  that  New 
Jersey  and  some  of  the  other  states  were  able  to  provide  facilities  for 
the  establishment  and  maintenance  of  the  trusts,  notwithstanding  the 
laws  of  other  states  and  of  the  National  Government  against  them. 
It  is  interesting  to  note  that  one  of  New  Jersey's  objects  seems  to 
have  been  the  desire  to  secure  revenue  by  the  taxation  of  corporations. 

§12.  The  proposal  for  a  separation  of  the  sources  of  state  and 
local  revenue  is  commonly  discussed  in  connection  with  home  rule. 
The  two,  however,  have  no  necessary  connection  with  each  other. 
They  rest,  in  the  main,  on  entirely  different  principles,  and  the  former 
might  be  adopted  without  the  adoption  of  the  latter.  Indeed,  a  begin- 
ning has  already  been  made.  The  State  alone  receives  the  revenue 
from  the  inheritance  tax,  from  the  taxes  on  insurance  premiums,  and 
from  those  on  the  gross  receipts  of  express  and  private  car  companies. 
The  poll  tax,  so  far  as  it  exists  at  all,  is  a  local  tax,  and  the  cities 
make  use  of  a  considerable  number  of  business  licenses  in  the  revenue 
from  which  the  State  has  no  share.  As  regards  the  chief  form  of 
taxation,  however,  there  is  no  such  separation. 

Of  the  arguments  in  favor  of  separation  two  only  will  here  be 
considered.  The  first  rests  on  the  relation  of  the  particular  source  of 
revenue  to  the  government,  and  the  second  on  practical  questions  of 
administration. 

There  are  some  sources  that,  in  a  way,  seem  particularly  appro- 
priate to  the  State  and  others  to  the  localities.  As  we  have  already 
seen  a  large  portion  of  the  property  of  the  inter-county  public  service 
corporations,  especially  that  represented  by  the  franchise,  is  incapable 
of  very  definite  location,  and  might  reasonably  be  attributed  to  the 
State.  Not  only  is  the  value  difficult  to  apportion,  but  it  is  largely  de- 
pendent on  state  functions.  The  same  may  be  said  of  the  value  of  cor- 
poration franchises  generally,  not  including  the  special  franchises 
granted  by  municipalities.  On  the  other  hand  the  value  of  the  tangible 
property  of  corporations,  while  presenting  some  difficulties,  especially 


THE  liEFOUM  OF  THE  TAX  SYSTEM  133 

in  the  case  of  companies  doing  an  inter-county  business,  seems  to  be 
largely  a  local  matter.  If  a  separation  were  made  real  estate  would 
seem  to  be  particularly  appropriate  to  the  localities  because  of  the 
close  relation  between  its  value  and  local  functions  and  expenditures. 
This  applies  to  such  propert}'  as  railroad  terminals  as  well  as  to  other 
forms  of  real  estate. 

There  are  clearly  some  subjects  that  can  be  adequately  assessed 
only  by  the  state.  Here,  again,  the  public  service  corporations  are 
conspicuous.  On  the  other  hand,  if  there  is  anything  that  is  par- 
ticularly suitable  for  local  assessment  it  would  seem  to  be  real  estate. 
The  reason  for  this  is  that  a  knowledge  of  local  conditions  is  desir- 
able; but  assessors  with  a  knowledge  of  local  conditions  could,  and 
presumably  would,  be  chosen  under  state  assessment.  Our  whole 
study  of  assessment  has  pointed  to  the  desirability  of  at  least  a  large 
measure  of  state  control.  To  be  sure  this  is  partly  due  to  the  diffi- 
culties of  inter-county  equalization,  which  presumably  would  be  done 
away  with  under  the  separation  of  the  sources,  but  it  is  by  no  means 
entirely  so.  As  we  have  seen  local  assessors  are  under  a  very  strong 
temptation  to  attract  taxpayers  by  a  low  valuation.  Indeed,  local 
control  of  assessment  has  some  of  the  chief  disadvantages  of  home 
rule,  with  the  additional  disadvantage  that  if  concessions  were  made 
it  would  be  less  likely  to  be  done  frankly  and  openly. 

It  would  seem  that  complete  separation  of  the  sources  would  al- 
most certainly  result  in  serious  inequalities.  It  is  highly  improbable 
that  sufficient  sources  of  revenue  especially  appropriate  to  the  state 
could  be  found.  It  would  be  necessary  either  to  utilize  for  the  state 
sources  especially  appropriate  to  the  localities  or  to  abandon  the  idea 
of  complete  separation.  The  former  plan  would  probably  result  in 
considerable   inequalities   between  the  localities. 

It  is  sometimes  said  that  the  state  should  rely  largely  on  indirect 
taxes.  As  we  have  already  seen,  these  may  legitimately  be  used  as 
a  part  of  the  system,  and  this  is  true  whether  the  system  be  national, 
state,  or  local.  It  is  also  true  that  they  should  not  be  used  exclusively 
by  any  of  these  governmental  agencies.  Where  they  are  serious  in- 
equalities are  almost  certain  to  result.  Besides  this  they  are  generally 
inelastic.  Both  the  state  and  the  localities  need  an  elastic  clement  in 
their  tax  systems.  In  both  cases  this  should  be  a  direct  tax,  and  should 
be  applied  so  broadly  and  with  such  a  degree  of  equality  that  no  im- 
portant set  of  persons  would  be  under  the  temptation  to  approve  large 
public  expenditures  with  the  idea  that  the  burden  would  be  borne  by 


134  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

someone  else.  To  provide  separate  and  satisfactory  taxes  of  this  sort 
for  the  state  and  the  localities  would  be  very  difficult  and  there  is 
much  ground  for  the  fear  that  it  could  not  be  done. 

It  does  not,  of  course,  follow^  that  there  should  be  no  separation. 
Some  taxes  are  especially  suited  for  state,  some  for  local  use.  To  a 
limited  extent  we  have  this  separation  now,  and  it  is  not  improbable 
that  when  the  tax  system  is  revised  we  shall  have  it  to  a  still  greater 
extent.  Complete  separation,  however,  is  hardly  desirable ;  and  it  is 
interesting  to  note  that  as  between  the  states  and  the  national  govern- 
ment the  movement  is  in  the  other  direction. 

§13.  Whatever  changes  are  made  the  existence  of  a  state  tax 
commission  is  a  matter  of  vital  importance.  On  this  point  there 
would  be  little  or  no  disagreement  among  the  authorities  on  taxation, 
and  their  views  are  well  confirmed  by  experience  in  this  and  other 
states.  Opposition  to  the  present  board,  which  shows  itself  biennially, 
seems  to  be  based  partly  on  a  misunderstanding  of  its  functions,  partly 
on  opposition  to  what  it  has  done. 

As  regards  the  functions  of  the  board  a  good  deal  has  been  said 
in  our  discussion  of  the  existing  system,  and  only  a  brief  summary  is 
needed  here.  Firstly,  it  has  a  general  oversight  of  the  tax  system. 
Its  members  are  supposed  to  be  authorities  on  the  subject,  and  so 
familiar  with  the  actual  conditions  as  to  enable  them  to  make  sug- 
gestions and  recommendations  to  the  Governor  and  the  Legislature. 
In  short,  it  is  the  State's  official  adviser  on  taxation  matters.  In  gen- 
eral its  recommendations  have  been  good,  and  some  of  them  have  been 
adopted  with  beneficial  results.  Secondly,  it  has  supervision  over  the 
county  assessors  and  is  their  official  adviser  and  instructor.  There  can 
be  little  doubt  that  the  administration  of  the  state  law  has  been  made 
more  effective  through  its  efforts.  Taking  them  as  a  whole,  the  as- 
sessors seem  strongly  opposed  to  the  abolition  of  the  Board.  Thirdly, 
it  has  collected  the  very  important  information  on  which  state  equaliza- 
tion must  rest.  While  it  has  probably  fallen  short  of  success  in  this 
matter,  it  must  be  remembered  that  it  has  had  a  well  nigh  impossible 
task.  Heretofore  its  members  have  been  members  of  the  State  Board 
of  Equalization.  Upon  the  whole  there  is  little  reason  to  doubt  that 
as  a  result  of  its  work  state  equalization  has  been  improved.  Fourthly, 
it  has  had  direct  responsibility  for  the  assessment  of  the  operating 
property  of  railroad  and  telegraph  companies.  While  it  is  possible 
that  this  work  could  be  done  by  the  Public  Service  Commission,  it  must 
be  remembered  that  taxation  and  regulation  are  two  distinct  things, 


THE  REFORM  OF   THE  TAX  SYSTEM  135 

and  that  the  valuations  suited  for  the  two  purposes  are  frequently 
different.  As  we  have  seen  the  work  of  the  Board  as  assessor  should 
be  extended  rather  than  reduced.  Finally,  it  has  direct  charge  of  the 
administration  of  a  number  of  state  taxes,  including  those  on  the  gross 
earning  of  express  and  private  car  companies,  and  the  very  important 
inheritance  tax.  In  connection  with  the  latter  it  has  had  under  its 
care  the  state's  interest  in  escheats.  There  are  one  or  two  other 
functions  that  might  be  mentioned,  but  they  are  not  essentially  a  part 
of  its  work  as  a  tax  commission. 

It  is  not,  of  course,  contended  that  the  work  of  the  Board  has 
been  so  good  that  nothing  can  be  said  against  it.  Doubtless,  even 
under  the  circumstances,  there  are  respects  in  which  improvement  is 
possible.  It  must  be  remembered,  however,  that  the  system  with  the 
administration  of  which  it  is  charged  has  practically  no  friends  among 
those  who  are  generally  regarded  as  authorities  upon  the  subject. 
If  it  has  failed  to  make  the  system  work  well  it  has  failed  where  many 
have  tried,  under  a  great  variety  of  conditions,  and  none  has  suc- 
ceeded. It  seems  clear,  however,  that  it  has  made  the  system  much 
more  effective  than  it  would  otherwise  have  been.  In  the  process,  no 
doubt,  some  evils  have  been  made  more  effective.  Opposition,  how- 
ever, should  be  aimed  at  the  system  which  is  responsible  for  the  evils, 
not  at  the  commission  whose  duty  it  is  to  make  the  system  effective. 

If  a  satisfactory  system  of  taxation  were  established  the  need  of 
a  commission — or  possibly  even  of  a  tax  department — would  probably 
be  much  greater  than  it  is  today.  The  present  system  is  fairly  simple. 
It  is  altogether  too  simple — and  too  crude — for  the  difficult  and  deli- 
cate function  it  is  intended  to  perform.  A  scientific  system  will  nec- 
essarily be  somewhat  more  complex,  and  it  must  be  scientifically  ad- 
ministered. The  commission  might,  perhaps,  be  reorganized,  but  the 
change  should  be  in  the  direction  of  increasing  rather  than  of  dimin- 
ishing its  importance.  There  should  be  some  one  body  having  gen- 
eral oversight  of  the  entire  system,  able  to  direct  its  subordinates  and 
able  to  inform  and  advise  its  superiors. 

§14.  Our  system  of  taxation  was  adopted  when  we  were  a  small 
frontier  community.  Since  then  we  have  become  a  great  common- 
wealth, a  part  of  a  highly  complex  civilization.  Our  methods  of  tax- 
ation have  not  developed  in  anything  like  a  corresponding  manner. 
It  need  not  be  denied  that  the  adoption  of  methods  suited  to  present 
conditions  will  be  accompanied  by  some  difficulties,  and  perhaps  some 
dangers.      The  latter,  however,  are  hardly  likely  to  be  greater  than 


136  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

the  dangers  of  attempting  to  confine  ourselves  to  a  system  that  we 
have  outgrown.  A  change  of  some  sort  is  pretty  sure  to  come.  If  we 
proceed  to  this  change  with  an  earnest  desire  to  do  justice  and  to 
accept  the  light  that  science  can  give,  we  may  expect,  not  indeed  per- 
fection, but  a  condition  in  keeping  with  our  place  as  a  great  state,  and 
highly  favorable  to  our  own  prosperity. 


Index 

A 

Ability  as  a  basis  for  taxation,  11. 

Apportioned  taxes,  17. 

Apportionment  of  value  of  railroad  and  telegraph  property,  to  coun- 
ties,  85 ;   to  the   State,   84. 

Appropriations,   2. 

Assessed  value,  and  fair  value,  80-2;  and  true  value,  48-51. 

Assessment,  county,  52;  national,  75-6;  state,  73-5,  90-4;  state  and 
county,  39;  size  of  district,  40;  township,  40.  See  also  Valua- 
tion. 

Assessment  day,  47,65. 

Assessor,  county,  conventions,  46 ;  deputies,  44 ;  eligibility,  43 ;  pay, 
44;  selection,  41-2;  supervision,  45;  tax  rate,  31. 

Automobile  licenses,  105-6. 

B 

Bachelors,  28. 
Banks,  66. 

Basis  of  taxation,  ability,  1 1  ;  benefit,  9. 
Benefit  as  a  basis  for  taxation,  9. 
Boards  of  equalization,  see  Equalisation. 
Bonding,  50. 

Books,  examination  of.  manufacturers',  65;  merchants'.  6 1;  mine  oper- 
ators', 61. 
Budget,  2. 
Buildings,  58. 
Business  property,  120. 

C 

Centralization  of  assessment,  42,   93-4,    118. 

Certainty,  12. 

Classified  property  tax,  123-8. 

Collection,  corporation  tax,  96 ;  express  and  private  car  companies' 
tax,  103;  general  property  tax,  32-6;  inheritance  tax,  114;  in- 
surance premiums  tax,  99. 

Community  property,  110. 

Constitution,  amended,  24;  exemptions,  27;  further  amendment.  122; 
uniform  taxation,  25. 

(137) 


138  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

Convenience,  12. 

Conventions,  county  assessors',  46. 

Corporations,  95-7. 

County,  as  a  unit  of  assessment,  39.     See  also  Assessment,  county. 

County  assessor,  see  Assessor,  county. 

Courts,  correction  of  assessments,  72.     See  also  Supreme  Court. 

Credits,  see  Intangibles. 

D 

Debts,  deduction  from  credits,  28 ;  payment  of  public,  37. 

Declarations,  express  and  private  car  companies,  103;  general  prop- 
erty tax,  71 ;  railroad  and  telegraph  companies,  78. 

Delinquency,  corporations,  96;  express  and  private  car  companies,  103; 
inheritance,  115;  insurance,  99;  penalty,  37-8;  personal  prop- 
erty, 33;  real  property,  35-6. 

Depreciation,  improvements,  58 ;  manufacturing  plants,  Q5. 

Deputy  assessors,  44. 

Direct  taxation,  12. 

Dishonesty,  70. 

Double   taxation,   inheritance  tax,   108-9;   intangibles,   26-7,   126-7. 

E 

Economy,  a  canon  of  taxation,  12;  and  indirect  taxation,  2,  15. 

Education,  benefit  theory,  10. 

Elasticity  of  taxes,  16;  of  general  property  tax,  30. 

Equality,  assessed  and  true  value,  47;  a  canon  of  taxation,  11-2;  im- 
portance, 1  ;  indirect  taxes,  14;  shifting  of  taxes,  121. 

Equalization,  county  board,  71-2;  state  board,  49,  188-9;  tax  rate,  31. 

Escheats  5,  135. 

Evasion,  inheritance  tax,  116-7;  single  tax,  18. 

Evils  of  bad  taxation,  1. 

Exemption,  household  goods,  70-1 ;  general  property  tax,  25-30;  inher- 
itance tax,  109-111;  insurance,  100-1;  intangibles,  26,  126-7; 
quasi-public  property,  28-9;  power  to  exempt,  28;  public  prop- 
erty, 27. 

Expenditure,  economy,  2;  future  increase,  1. 

Experts,  merchandise,  64;  mineral  lands,  61  ;  timber,  59;  urban  lands, 
53. 

Express  companies,  101-4. 

Extension  of  taxes,  32. 

Extravagance,  2. 


INDEX  139 

F 

Faculty  tax,  23. 

Fair  value  and  assessed  value,  80-2, 

Farm  lands,  56-8. 

Fees,  corporation,  95-6;  defined,  4;  insurance,  97-8. 

Fish  traps,  69. 

Foreclosure,  36. 

Forests,  assessment,  59;  special  taxation,  120. 

Franchise,  corporation  tax,  95-7;  public  utilities,  68. 

Frequency  of  valuation,  47. 

Fruit  trees,  29. 

Funds,  30. 

G 

General  property  tax,  abandoned  elsewhere,  22 ;  defined,  22 ;  elastic- 
ity, 30;  exemptions,  25-30;  forests,  120;  generally  condemned, 
22;  history,  22-4;  organic  act,  23;  state  constitution,  25;  theo- 
retical defects,  119-121. 

George,   Henry,    19. 

Gifts,   5. 

Good  will,  25,  68,  83. 

H 

Home  rule,  130-2. 

Household  goods,  assessment,  70;  low  rate,  120. 

I 

Improvements,  assessment,  58;  classified  property  tax,  124. 

Incidence,   13-4. 

Income  tax,  as  a  single  tax,  17;  as  a  substitute  for  personal  property 

tax,  128-9. 
Indirect  taxes,    12-5. 
Industry,  regulation,  7. 
Inheritance  tax,  assessment,  114-5;  evasions,  116-7;  exemptions,  109- 

111;  rates,   112-3;  scope,  107;  yield,   115-6. 
Initiative   and   referendum,   3. 

Injustice,  of  bad  taxation,  1  ;  extravagance,  2;  dangerous  reform,  122. 
Insurance,  criterion  of  value,  66;  fees,  97-8;  premiums  tax,  98-101; 

taxation  99-101. 
Intangibles,  classified  property  tax,  126-7;  double  taxation.  26-7,  126- 

7;  exemption,  26-7,  126-7;  failure  of  general  property  tax,  25, 

26n;  meaning,  25;  possibilities  of  low  rate,  118. 
Intercounty  property,  73,  93. 


140  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

Interest  on  delinquent  taxes,  37-8. 
Itinerant  merchants,  34. 


Land,  classified  property  tax,  125;  forests,  59;  mineral,  60;  rural,  56; 

urban,  53. 
Licenses,  automobile,  95,  105-6;  corporations,  96-7 ;  liquor,  8,  95,  104-5. 
Live  stock,  63. 
Local  and  state  taxation,  5. 
Local  option  in  taxation,  130-2. 

M 

Manufacturing  plants,  65. 

Merchandise,  63. 

Merchants,  itinerant,  34. 

Mileage  of  railroad  and  telegraph  companies,  85-8. 

Mineral  lands,  60. 

Money,  denied   exemption,  26. 

Mortgages,  14.     See  also  Intangibles. 

o 

Operating  property,  railroad  and  telegraph,  76. 
Orchards,  29. 

P 

Penalty,  delinquent  taxes,  37 ;  not  taxation,  1 1 . 

Personal   earnings,   120. 

Personal  property,  classified  property  tax,  125-6;  assessment,  63. 

Politics,  county  assessor,  42. 

Premiums  tax,  98-101. 

Prices,   4. 

Privilege  taxes,   101-4. 

Progressive   taxation,    12. 

Property,  classification,   123-8;  meaning,  5-Q. 

Public  property,  exempt,  27. 

Public  Service  Commission,  replaced  Railroad  Commission,  79;  val- 
uation of  railroads,  78-85. 

Public  utilities,  assessment,  67;  county  and  state,  76;  state  assess- 
ment, 93. 

Purpose  of  taxation,  7-9. 

Private  car  companies,   101-4. 


INDEX  141 

R 

Railroad  Commission,  78n;  79. 

Railroads,  apportionment  of  value  to  counties,  85;  to  state,  84-;  na- 
tional assessment,  75-6;  overassessment,  90-2;  state  assessment, 
73,  82-5;  terminals,  77;  valuation,  79. 

Rate,  assessed  and  true  value,  50;  automobiles,  106;  corporation  fran- 
chise tax,  96;  express  and  private  car  companies,  101  ;  general 
property  tax,  31;  inheritance  tax,  112-3;  insurance  premiums 
tax,  99;  limit,  30. 

Real  estate,  assessment,  52;  banks,  67;  classified  property  tax,   123. 

Referendum  and  initiative,  3. 

Regulation,  industry,  7;  wealth,  9. 

Reserves,  17. 

Retaliatory  taxation,  97. 

Revenue,  expenditure,  17;  future  needs,  1  ;  regulation,  7-9;  sources,  4. 

Rolling  stock,  74. 

Rural  lands,  56. 

S 

Salaries  of  county  assessors,  42. 

Seattle  Real   Estate  Association,  56. 

Securities,  difficulty  of  taxing,  14;  practicability  of  taxing  at  a  low 
rate,  118.     See  also  Intangibles. 

Shifting  of  taxes,  13;  equality,  121. 

Ships,  denied  exemption,  27 ;  materials,  30. 

Single  tax,  Henry  George,  18-9;  partial.  19;  tax  system,  17-8;  Van- 
couver, B.  C,  124. 

Smith,  Adam,  canons  of  taxation,  11. 

Somers  system,  54-6. 

Sources,  of  revenues,  4-5;  separation,  73,  132-4. 

Stability  of  taxes,  16. 

State  and  local  taxation,  5. 

State  Board  of  Equalization,  see  Equalization. 

State  Board  of  Tax  Commissioners,  authority  over  assessors,  42 ;  equal- 
ization, 88-9;  functions,  134-5;  inheritance  tax.  114;  necessity, 
135;  private  car  and  express  companies.  103;  railroad  and  tele- 
graph property,  82-6 ;  supervision  of  assessors,  45. 

Statistics,  unavailable  to  assessor,  69. 

Stock  and  bond  method,  82. 

Stock  in  trade,  .63. 


142  THE  STATE  TAX  SYSTEM  OF  WASHINGTON 

Stocks  and  bonds,  see  Securities  and  Intangibles. 

Supervision  of  county  assessors,  45. 

Supreme  Court,  assessment  by  tax  commissioners,  79;  exemption  of  in- 
tangibles, 26;  exemption  of  ships,  27;  good  will,  83;  power  of 
exemption,  28;  rate  of  inheritance  tax,  112;  review  of  assess- 
ments, 72;  taxation  of  express  companies,  lOS-^. 

System  of  taxation,  qualities  needed,  20;  single  tax,  17. 

T 

Tariff,  8. 

Taxation,  direct  and  indirect,  12;  incidence,  13;  purpose,  7-9;  shift- 
ing, 13. 

Taxes,  defined,  4;   future  increase,   1. 

Telegraph  companies,  apportionment  of  value  to  counties,  85 ;  to  state, 
84;  national  assessment,  75-6;  state  assessment,  73;  valua- 
tion, 75. 

Terminals,  77,  86-7. 

Timber  cruises,  59.    See  also  Forests. 

Treasurer,  county,  collector  of  property  taxes,  32-7. 

True  value,  48. 

U 

Undervaluation,  48. 

Unearned  income,  20. 

Unearned  wealth,  1 1 . 

Uniformity  of  taxation,  27. 

Unit  rule,  74,  86. 

Universality  of  taxes,  13;  political  significance,  15. 

Urban  lands,  53. 

V 

Valuation,  banks,  66;  fish  traps,  69;  forests,  59;  frequency,  47;  house- 
hold goods,  70;  improvements,  58;  inheritances,  114-5;  live 
stock,  63;  manufacturing  plants,  65;  mechanical  systems,  55-6; 
merchandise,  63;  mineral  lands,  60;  personal  property,  63; 
public  utilities,  67;  real  estate,  52;  railways,  82-5;  rural  lands, 
56-8 ;  Somers  system,  54-6 ;  urban  lands,  53. 

Value,  assessed  and  fair,  80-2;  assessed  and  true,  48-51. 

Veto,  3. 

W 

Watercraft,  93. 


THEUBRART 


UNIVERSITY  OF  CALIFORNIA  LIBRARY 

Los  Angeles 
This  book  is  DUE  on  the  last  date  stamped  below. 


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